Author: inavatiq

The Reserve Bank of India (RBI) has cancelled the banking licence of Paytm Payments Bank, effective April 24, 2026, bringing an end to all its regulated banking operations.

1. Cessation of Banking Operations

Following the cancellation:

• The bank is no longer permitted to:

1. 1. Accept deposits
   2. Undertake fund transfers
   3. Provide any regulated banking services

• The process of winding up has been initiated

2. Regulatory Reasons for Cancellation

The RBI’s action is based on:

• Serious lapses in governance standards
• Persistent non-compliance with regulatory directions
• Failure to adhere to licence conditions

3. Prior Supervisory Actions

Before cancellation, RBI had:

• Imposed restrictions on operations
• Limited the bank’s activities to:

1. 1. Contain risks
   2. Protect customer interests

Despite these measures:

• The bank was unable to rectify regulatory deficiencies

4. Protection of Depositors

• RBI has clarified that the bank has adequate funds to repay depositors
• Customers will:

1. 1. Receive their funds through the prescribed winding-up process
   2. Be safeguarded during the transition

5. Regulatory Significance

This action underscores RBI’s:

• Commitment to strict regulatory enforcement
• Focus on governance and compliance standards
• Priority towards protecting depositors and financial stability

6. Conclusion

The cancellation marks a decisive regulatory step, ensuring that non-compliance and governance failures are addressed firmly, while maintaining confidence in the banking system through depositor protection measures.

Click Here To Read The Full Press Release

The post RBI Cancels Paytm Payments Bank Licence Over Compliance Failures appeared first on Taxmann Blog.

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Editorial Team – [2026] 185 taxmann.com 827 (Article)

Taxmann presents Practical Insights on Ind AS and SAs, a weekly series exclusively for Accounts and Audit Module subscribers on Taxmann.com, that simplifies complex accounting concepts through real-world applications.

This edition explains the measurement framework under Ind AS in a simple, practical, and relatable manner, so that users not only understand the concepts but can also apply them confidently in real-life situations.

Introduction

Financial statements are not merely a record of transactions; they are intended to present a meaningful and faithful picture of an entity’s financial position and performance. To achieve this, every recognised element, i.e., assets, liabilities, equity, income, and expenses, must be expressed in monetary terms. This process, known as “measurement”, lies at the very heart of financial reporting under Ind AS.

A key question inevitably arises while preparing financial statements is

“ At what value should an asset or liability be reported? ” The answer to this question directly affects how relevant, reliable, and comparable the financial statements will be for users.

The Ind AS Conceptual Framework does not mandate a single measurement approach. Instead, it follows a principles-based framework that allows entities to select the most appropriate measurement basis, considering the nature of the item and the information needs of users. This flexibility ensures that financial information remains meaningful and decision-useful, rather than mechanically uniform.

For instance, consider land purchased for ₹10 lakh five years ago, which is now valued at ₹50 lakh. Whether the asset is reported at its historical cost or current value depends on the measurement basis applied. Such decisions require careful evaluation and professional judgment.

This article explores the different measurement bases under Ind AS, their practical application, and the challenges encountered in real-world scenarios.

1. Different Measurement Bases under Ind AS Framework

Measurement is the process of determining the monetary amount at which assets and liabilities are recognised and carried in financial statements. It requires selecting an appropriate measurement basis, such as historical cost, fair value, or fulfilment value, which determines how an item is valued and also affects related income and expenses.

Different measurement bases may be applied to different elements depending on what provides the most relevant and reliable information, guided by the qualitative characteristics of useful financial information and the cost constraint.

Ind AS may further explain how a selected measurement basis is to be applied, including estimation techniques, simplified approaches, and any necessary modifications, such as excluding own credit risk when measuring fulfilment value. In essence, measurement is like choosing a lens, where each basis offers a different perspective depending on the context.

Financial statements use different measurement bases to determine the value of assets, liabilities, income, and expenses. The two main categories are historical cost and current value, each providing different types of information.

1.1 Historical Cost

Historical cost measures assets, liabilities, and related income and expenses using the price of the transaction or event that gave rise to them. It reflects the actual amount paid or received at the time of acquisition or incurrence, adjusted only for impairment, depreciation, amortisation, or similar changes.

For assets, historical cost includes the purchase price along with transaction costs, while for liabilities, it includes the consideration received minus transaction costs.

Over time, historical cost is updated to reflect depreciation or amortisation, representing the consumption of the asset; payments received or made; impairment losses when the carrying amount is no longer recoverable; and interest where a financing component exists.

In the case of liabilities, historical cost is further adjusted for the settlement of obligations and for onerous liabilities where the cost becomes insufficient to fulfil the obligation.

For example, if machinery is purchased for ₹10 lakh, it will continue to be reported at that cost (less depreciation), even if its market value changes over time. Historical cost is simple, verifiable, and based on actual transactions, but it does not reflect current market conditions.

In essence, it answers the question: “What did it cost at the time of purchase?”

1.2 Current Value

Current value measures assets and liabilities based on conditions at the measurement date, using updated estimates rather than the original transaction price, thereby providing a more current view of their worth. It includes measures such as fair value, value in use or fulfilment value, and current cost.

It is forward-looking and typically involves estimation and judgment, yet it enhances decision-making relevance in changing economic conditions. The current value reflects up-to-date information by capturing changes in cash flow estimates, market conditions, and other economic factors.

In essence, current value answers the question of “what an asset or liability is worth at present.”

(a) Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is determined based on the assumptions of market participants and reflects current market conditions.

Fair value may be directly observed from quoted market prices or estimated using appropriate valuation techniques when active markets do not exist. In determining fair value, factors such as expected future cash flows, uncertainty and risk, including risk premiums, the time value of money, and liquidity and credit risk are considered.

For example, listed shares are measured at their current market price, which reflects their real-time value.

However, fair value has certain limitations, as it may introduce volatility in financial statements due to frequent market fluctuations and often requires significant estimation when observable market data is unavailable.

(b) Value in Use and Fulfilment Value

Value in use represents the present value of future cash inflows expected from the use and eventual disposal of an asset, while fulfilment value represents the present value of future cash outflows required to settle a liability. These are entity-specific measures based on expected future cash flows and internal assumptions rather than market data.

Value in use, applicable to assets, reflects the present value of cash inflows generated from using and disposing of the asset, whereas fulfilment value, applicable to liabilities, reflects the present value of cash outflows needed to fulfil the obligation.

These measures are based on the entity’s own assumptions rather than market participant views, include expected disposal or settlement costs, and are calculated using discounted cash flow techniques. For example, an asset may have a low market value but high internal usefulness, resulting in a higher value in use.

(c) Current Cost

Current cost represents the amount that would currently be required to acquire an equivalent asset or incur an equivalent liability, including transaction costs, and reflects present conditions rather than past transaction prices. It focuses on the replacement value of an asset or liability and may be adjusted to account for the age and condition of the existing asset.

Current cost includes the current purchase price and related transaction costs, with appropriate adjustments where necessary for factors such as wear and tear or obsolescence. It is an entry value, similar in nature to historical cost, but it differs in that it reflects current economic conditions instead of the original transaction price.

Thus, different measurement bases can lead to significantly different financial outcomes. Historical cost provides stability and verifiability, while current value approaches offer relevance and reflect economic reality. The choice of measurement basis, therefore, directly influences reported assets, liabilities, and profit, shaping an entity’s overall financial picture.

2. How does Measurement Affect Financial Statements under Ind AS?

The choice of measurement basis does not merely change numerical values; it significantly influences how financial performance and position are interpreted. As illustrated in the Conceptual Framework, different bases affect both the balance sheet and profit and loss in distinct ways.

For instance, under historical cost, gains are recognised only when realised. Under fair value, gains and losses are recognised as market values change, while value in use reflects estimates of future cash flows. Consequently, two entities holding identical assets may report very different financial results depending on the measurement basis applied.

Thus, when selecting a measurement basis, it is important to consider the nature of information it produces in both the balance sheet and the statement of profit and loss. Different bases provide different types of decision-useful information.

2.1 Historical Cost

Historical cost provides information derived from the original transaction price or event that gave rise to the asset or liability. This makes it relevant and reliable, particularly when transactions occur on market terms.

It assumes that the cost incurred is generally recoverable through future economic benefits. As a result, assets are carried at cost adjusted for consumption and impairment, while liabilities are increased when they become onerous.

Under this approach, consumption or disposal of assets results in expenses based on their original cost, and related income recognition helps determine margins. Similarly, settlement of liabilities generates income based on consideration received. This allows users to assess margins, predict future cash flows, and evaluate management efficiency.

2.2 Fair Value

Fair value reflects current market expectations regarding the amount, timing, and uncertainty of future cash flows. It is based on market participant assumptions and incorporates risk preferences.

Changes in fair value arise from various market factors and may be separately analysed to provide more meaningful information. In many cases, transactions at fair value result in minimal gains or losses at the point of sale or transfer, as carrying amounts already reflect market conditions.

Fair value information has both predictive and confirmatory value, as it reflects current expectations and provides feedback on past estimates.

2.3 Value in Use and Fulfilment Value

Value in use represents the present value of future cash flows expected from an asset, while fulfilment value represents the present value of cash outflows required to settle a liability.

Both measures are entity-specific and based on internal assumptions. They are particularly useful for predicting future net cash flows and assessing the economic benefits or obligations associated with assets and liabilities. Updated estimates also provide feedback on previous expectations, thereby enhancing decision usefulness.

2.4 Current Cost

Current cost reflects the amount required to acquire or replace an equivalent asset or settle an equivalent liability at the measurement date.

Unlike historical cost, it incorporates current price levels, making it more relevant in periods of significant price changes. It helps in determining current margins and improving predictions of future margins. However, it requires separating changes arising from consumption or fulfilment from those arising due to price movements, often referred to as holding gains or losses.

Thus, different measurement bases provide different perspectives on the same economic reality. Historical cost emphasises reliability and transaction evidence, fair value focuses on market conditions, while value in use and current cost highlight future economic benefits and replacement considerations. As a result, measurement choices directly shape reported profits, asset values, and overall financial interpretation.

Click Here To Read The Full Article

The post Practical Insights on Ind AS and SAs | Measurement Framework under Ind AS appeared first on Taxmann Blog.

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Subham Agarwal – [2026] 185 taxmann.com 778 (Article)

Typically, trusts are created to manage wealth, protect assets from creditors, and ensure smooth succession planning for intended beneficiaries. Trust is a legally secure framework for managing family property, providing for dependents, maintaining confidentiality, and achieving tax efficiency.

1. Meaning of a Trust

A trust is a legal agreement whereby one person, known as the settlor (also known as the author or creator of the trust), transfers ownership of property or assets to another person known as the Trustee, in order to manage and hold for the benefit of a third person or group of people known as Beneficiaries.

The concept of private trusts in India is governed by the Indian Trusts Act, 1882, while the taxation is governed by the Income Tax Act, 1961 (Income Tax Act, 2025).

Three important constituents of a Private Trust are as follows:

(a) Settlor (Author or Creator of the Trust) – The person who creates the trust by transferring property to the Trustee. The settlor defines the terms & conditions and objective of the trust through a Trust Deed or through a Will (known as a Testamentary Trust).

(b) Trustee – The Person or entity to whom the property or assets are vested and who holds the legal title of the trust property. A trustee is bound by fiduciary obligations to manage the trust property in accordance with the trust deed and for the benefit of the beneficiaries. Under the Income Tax Act, the trustee is treated as a Representative Assessee under Section 303(1)(d) of the Income Tax Act, 2025 [corresponding to Section 160(1)(iv) of the Income Tax Act, 1961].

(c) Beneficiaries – Person or group of people for whose benefit the trust property is held and managed. They hold the equitable or beneficial interest in the trust property. Their entitlements may be fixed and determinate, or they may be left to the discretion of the Trustee, as mentioned in the Trust Deed.

2. Types of Private Trust

Private trusts are created for the benefit of identifiable individuals or a defined group of people. They broadly fall into 2 categories, namely:

(a) Specific Trust (also known as Determinate Trust) – Where the beneficiaries are clearly identified, and their respective shares in the trust income or corpus are determinate or known.The trust deed specifies the proportion of income or capital each beneficiary is entitled to receive. Here, the income is assessed individually in the hands of the beneficiary, in proportion to their respective shares and taxed at the rates applicable to each beneficiary. The taxation of a specific trust is governed by Section 304 of the ITA 2025 [corresponding to Section 161 of ITA 1961], which provides that the representative assessee (trustee) shall be assessed in like manner and to the same extent as the beneficiary.

(b) Discretionary Trust (also known as Indeterminate Trust) – Where the Trustee holds the power to decide the group of beneficiaries who can receive either capital or income from the trust, entirely at the trustee’s discretion. In other words, the distribution of all capital and income is completely at the discretion of the Trustee. In these kinds of trusts, not only are the beneficiaries’ identities unknown or indeterminate, but the beneficiaries’ shares are as well. This stand has been accepted and followed by several judicial precedents.

3. Taxability of Private Discretionary Trusts at the Maximum Marginal Rate

The taxation of Private Discretionary Trusts is governed by Section 307 of the ITA 2025 [corresponding to Section 164 of the ITA 1961].

Section 164(1) of the repealed ITA 1961 states that:

“Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate.

Provided that in a case where—

(i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or

(ii) ….

(iii) …..

(iv) …..

tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons.”

Further, in relation to clause (i) of Section 164(1) of the ITA 1961, the CBDT vide Circular No. 281, dated 22-09-1980, clarified that for a trust to be covered in the first proviso, both conditions stipulated under clause (i) of the proviso must be cumulatively satisfied. The relevant extract of the circular is reproduced below:

30.3….

2. …. With a view to ensuring that the provision is not misused in this manner, the Finance Act has amended the relevant provision to provide that a discretionary trust would be liable to tax at the maximum marginal rate unless none of the beneficiaries had any other income chargeable to tax nor is he a beneficiary under any other private trust. It has also been clarified that, in this context, income chargeable to tax would mean total income above the exemption limit for the relevant year. As a result, the income of a discretionary trust will be chargeable to tax at the maximum marginal rate in cases where any of the beneficiaries has any other taxable income exceeding the exemption limit or if any of the beneficiaries is a beneficiary under any other private trust.

In essence, trusts created for the benefit of individuals will typically be taxed at the maximum marginal rate where income earned by that individual exceeds the basic exemption limit.

Click Here To Read The Full Article

The post [Opinion] Private Discretionary Trusts and the Surcharge Conundrum appeared first on Taxmann Blog.

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The Goods and Services Tax Network (GSTN) has introduced an Excel-based IMS (Invoice Management System) Offline Tool on the GST portal to enhance taxpayer convenience and compliance efficiency.

1. Objective of the Tool

The tool aims to:

• Simplify invoice-level actions
• Enable bulk processing of data
• Improve accuracy and ease of compliance

2. Key Functionalities

2.1 Invoice Actions (Individual & Bulk)

Recipient taxpayers can:

• Accept invoices
• Reject invoices
• Mark invoices as Pending
• Take No Action

Applicable to invoices filed through:

• GSTR-1
• GSTR-1A
• Invoice Furnishing Facility (IFF)

2.2 Offline Processing Capability

Taxpayers can:

• Download IMS data in JSON format
• Process and validate data offline using Excel tool
• Re-upload processed data to the GST portal

2.3 Validation & Business Rule Consistency

• The tool follows same validations and business rules as the IMS dashboard
• Ensures:

1. 1. Uniform treatment of records
   2. Accuracy in invoice status classification

2.4 Error Identification & Correction

Enables:

• Detection of errors before submission
• Efficient correction in bulk datasets

3. Benefits to Taxpayers

• Reduces dependency on real-time portal interaction
• Facilitates large-scale invoice reconciliation
• Improves efficiency and accuracy in GST compliance

4. Conclusion

The IMS Offline Tool is a practical compliance enhancement, allowing taxpayers to manage invoices offline with precision and flexibility, while ensuring seamless integration with GST system validations.

Click Here To Read The Full Update

The post GST IMS Excel Tool for Bulk Invoice Actions Launched appeared first on Taxmann Blog.

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The Securities and Exchange Board of India (SEBI) has proposed a new methodology for calculating variable net worth of stock brokers, aligning capital requirements with actual business scale and risk exposure.

1. Background – Limitation of Existing Framework

• Earlier, variable net worth was based on client funds held by brokers
• However, due to regulatory reforms:

1. 1. Client funds are now largely transferred directly to clearing corporations
   2. Brokers no longer hold significant client balances

Result – The existing method no longer reflects true operational risk

2. Proposed New Methodology

SEBI proposes to link variable net worth to:

• 10% of average client balances, and
• Number of active clients

This includes:

• Clients onboarded directly by brokers
• Clients brought through Authorised Persons

3. Shift in Approach

The new framework focuses on:

• Trading activity levels
• Client engagement and scale of operations

Instead of:

• Merely tracking funds held by brokers

4. Objective of the Proposal

The revised approach aims to:

• Ensure brokers maintain capital proportionate to their business size
• Reflect actual operational and systemic risk
• Strengthen risk management practices

5. Expected Impact

• Brokers with:

1. 1. Larger client base
   2. Higher trading volumes

Will be required to maintain higher capital buffers

This will lead to:

• Enhanced investor protection
• Improved market stability
• Better alignment between risk and capital requirements

6. Conclusion

SEBI’s proposal marks a shift towards a more activity-based and risk-sensitive capital framework, ensuring that regulatory requirements remain relevant in a changing market structure.

Click Here To Read The Full Update

The post SEBI Proposes Risk-Based Net Worth Norms for Brokers appeared first on Taxmann Blog.

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Case Details: Karnataka Vikas Grameena Bank vs. Deputy Commissioner of Commercial Taxes (Enforcement-2) [2026] 185 taxmann.com 418 (Karnataka)[08-04-2026]

Judiciary and Counsel Details

• M. Nagaprasanna, J.
• V. Raghuraman, Sr. Adv., Shashank S. Hegde, C.R. Raghavendra & Bhanu Murthy J.S., Advs. for the Petitioner.
• G.M. Gangadhar, AAG & M.B. Kanavi, Adv. for the Respondent.

Facts of the Case

The petitioner, a Regional Rural Bank, was subjected to inspection, pursuant to which DRC-01A was issued by the jurisdictional officer under CGST proposing the levy of GST under reverse charge on commissions paid to pigmy agents. It was submitted that pigmy agents functioned as employees under its control and were not independent business facilitators. Therefore, commissions paid to them constituted wages under an employer-employee relationship. It was contended that such services fell outside the scope of supply and no GST, including under reverse charge, was payable. The petitioner relied upon the terms of engagement, demonstrating that the bank exercised pervasive control over the agents. The petitioner further submitted that classifying such agents as business facilitators was erroneous, as they did not operate as intermediaries under the RBI model. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that the relationship between the petitioner and the pigmy agents constituted that of employer and employee. It held that the commissions paid to such agents were in the nature of wages arising out of employment and not consideration for independent services. The Court interpreted Section 7 read with Schedule III of the CGST Act to conclude that services rendered by an employee to the employer in the course of employment are outside the scope of supply and therefore not exigible to GST. It concluded that classifying such agents as business facilitators was invalid because the factual matrix did not meet the criteria for independent intermediaries and GST, including under the reverse charge mechanism, was not payable on such payments, and the impugned show cause notices were liable to be quashed.

List of Cases Reviewed

• Indian Banks Association v. Workmen of Syndicate Bank 2001 taxmann.com 4526 (SC) (para 11)
• Dharangadhara Chemical Works Limited v. State of Saurashtra 1956 SCC OnLine SC 11 (para 11)
• Hussainbhai v. Alath Factory Tozhilali Union 1978 taxmann.com 278 (SC) (para 11)
• Sushilaben Indravadan Gandhi v. New India Assurance Company Ltd. (2021) 7 SCC 151 (para 11), followed

List of Cases Referred to

• Indian Banks Association v. Workmen of Syndicate Bank 2001 taxmann.com 4526 (SC) (para 7)
• Dharangadhara Chemical Works Limited v. State of Saurashtra 1956 SCC OnLine SC 11 (para 10.1)
• Hussainbhai v. Alath Factory Tozhilali Union 1978 taxmann.com 278 (SC) (para 10.2)
• Sushilaben Indravadan Gandhi v. New India Assurance Company Ltd. (2021) 7 SCC 151 (para 10.3).

The post Pigmy Agents Treated as Employees – No GST on Commission | HC appeared first on Taxmann Blog.

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Case Details: Mytrah Energy India (P.) Ltd. vs. Union of India [2026] 185 taxmann.com 547 (Andhra Pradesh)

Judiciary and Counsel Details

• R Rashunandan Rao & T.C.D. Sekhar, JJ.
• Sai Sundeep Manchikalapudi, Adv. for the Petitioner.
• Suresh Kumar Routhu, Sr. SC for the Respondent.

Facts of the Case

The petitioner, a solar EPC supplier, was assessed in respect of supplies of solar power generating systems, and the assessment order passed during the pendency of the writ petition was challenged. It submitted that its supplies constituted a composite supply and contended that the explanation inserted by Notification No. 24/2018-Central Tax (Rate), dated 31-12-2018 providing for a 70:30 split of goods and services was optional and operative only from 01-01-2019. It was further contended that such split to the pre-01-01-2019 period was erroneous, particularly when the nature of supply had not been examined. It submitted that no determination had been made as to whether the supply resulted in immovable property or involved installation of movable goods, and thus the proper tax treatment was not ascertained. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Circular No. 163/19/2021-GST, dated 06-10-2021 did not mandate retrospective application of the explanation inserted by the Notification No. 24/2018-Central Tax (Rate), dated 31-12-2018, but merely permitted its application at the option of the taxpayer. It held that the 70:30 split was applied mechanically without examining the nature of the supply or the applicability of Section 8 of the CGST Act. The assessment also ignored pre-01.01.2019 turnover and wrongly assumed retrospective effect of the explanation. Accordingly, the assessment order was held unsustainable and the matter was remanded for fresh determination.

List of Cases Referred to

• Sterling and Wilson (P.) Ltd. v. Joint Commissioner [2025] 170 taxmann.com 539/108 GST 567/95 GSTL 402 (Andhra Pradesh) (para 8)
• Siemens Gamesa Renewable Power (P.) Ltd. v. Asstt. Commissioner ST [Writ Petition No. 4799 of 2022, dated 3-12-2025] (para 8)
• Arka Green Power (P.) Ltd. v. State of Andhra Pradesh [Writ Petition No. 11989 of 2022, dated 24-12-2025] (para 8).

The post Solar EPC 70:30 GST Split Not Retrospective Without Review | HC appeared first on Taxmann Blog.

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The Securities and Exchange Board of India (SEBI), through a clarification dated 20th April 2026, has addressed queries relating to the Mutual Fund Regulations, 2026, specifically concerning Asset Management Companies (AMCs) under Route-2.

1. Net Worth Requirements for AMCs (Route-2)

As per the regulations:

• At the time of registration AMC must have a net worth of ₹150 crore, contributed by the sponsor
• Ongoing requirement:

1. 1. Maintain ₹100 crore net worth
   2. Can be reduced to ₹50 crore after 5 consecutive years of profitability

2. Query 1 – Composition of Net Worth (Equity + Preference Shares)

• The applicant proposed:

1. 1. ₹50 crore in equity shares
   2. ₹100 crore in redeemable preference shares (redeemable after 5 years of profits)

• SEBI’s Response:

1. 1. No clarification provided
   2. Cited policy-related considerations

3. Query 2 – Can a Family Trust Act as Sponsor?

SEBI clarified:

• A sponsor must be a “body corporate”
• A family trust is not a body corporate

Therefore:

• A family trust cannot act as a sponsor of a mutual fund

4. Important Caveat by SEBI

• The clarification:

1. 1. Is based only on the facts presented
   2. Does not constitute a final or binding decision

• Compliance with other applicable laws may still be required

5. Conclusion

The clarification reinforces SEBI’s strict interpretation of sponsor eligibility, ensuring only corporate entities can sponsor mutual funds, while leaving flexibility open on capital structure questions pending policy review.

Click Here To Read The Full Update

The post Family Trust Can’t Be Mutual Fund Sponsor | SEBI Clarifies appeared first on Taxmann Blog.

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CA Bhawna Grover & CA Prajwal Jha – [2026] 185 taxmann.com 779 (Article)

1. Introduction

Surface mining, commonly referred to as strip mining, involves the removal of layers of soil, rock, and other materials, collectively known as overburden, to access mineral deposits beneath the earth’s surface. Unlike underground mining, this method is typically used where mineral reserves are relatively close to the surface, such as in coal and lignite extraction.

In the course of such operations, entities incur significant costs in removing waste material. These costs, known as stripping costs, arise both during the development phase and the production phase of a mine. While development phase stripping costs are generally capitalised as part of the overall cost of constructing the mine, the accounting treatment becomes more nuanced once production begins.

During the production phase, stripping activities may generate dual benefits. On one hand, they facilitate the extraction of ore that can be processed into inventory in the current period. On the other hand, they may improve access to deeper or higher-quality ore deposits, thereby creating future economic benefits. The challenge lies in appropriately identifying, measuring, and allocating these costs to ensure that financial reporting reflects the economic substance of the mining activity.

2. Nature of Stripping Activity and Its Economic Impact

Stripping activity is an integral part of surface mining operations. It involves removing overburden to expose the ore body, enabling extraction. However, the material removed is often a mix of waste and usable ore, and the proportion between the two can vary significantly.

This relationship is captured through the concept of the stripping ratio, which indicates the quantity of waste material that must be removed to extract a given quantity of ore. A higher ratio implies greater effort and cost to access the same amount of ore, directly influencing operational efficiency and cost management.

Importantly, stripping activity does not merely facilitate current production. In many cases, it enhances access to future reserves, making it a forward-looking activity. This dual nature, current benefit and future benefit, is at the heart of the accounting challenge.

3. Accounting for Stripping Costs in the Production Phase

The accounting treatment of stripping costs during the production phase depends on the nature of the benefit derived. Where the benefit relates to ore extracted and processed in the current period, the associated costs are treated as part of inventory and recognised as an expense in accordance with the principles applicable to inventories.

However, where the stripping activity results in improved access to ore that will be extracted in future periods, the costs may be capitalised as a stripping activity asset, subject to certain conditions. This asset represents the economic benefit arising from enhanced access to the ore body.

In situations where a single stripping activity gives rise to both current and future benefits, the costs must be allocated between the inventory and the stripping activity asset. This allocation is typically based on a systematic and rational method, often linked to production metrics such as volume of waste removed or ore extracted.

Let us understand the concept with an example.

Example 1

Consider a mining company that incurs ₹1,000 lakh in overburden removal costs during a particular year. As a result of this activity, the company is able to extract ore worth ₹600 lakh in the current period. At the same time, the stripping activity exposes deeper layers of high-grade ore that will be mined in future years.

In this case, the stripping activity provides two distinct benefits: immediate extraction of ore (current benefit) and improved access to future reserves (future benefit). Accordingly, ₹600 lakh of cost would be associated with inventory (and expensed as cost of goods sold). In comparison, the remaining ₹400 lakh may qualify for capitalisation as a stripping activity asset, subject to meeting recognition criteria.

Example 2

Assume a company removes 1,000 tonnes of waste to extract 500 tonnes of ore. Based on technical estimates, only 700 tonnes of waste removal was required for current production, while the excess 300 tonnes improves access to future ore.

If total stripping cost incurred is ₹700 lakh, then:

Cost attributable to current production = (700/1,000) × ₹700 lakh = ₹490 lakh

Cost attributable to future benefit = (300/1,000) × ₹700 lakh = ₹210 lakh

Here, ₹490 lakh is treated as inventory cost, while ₹210 lakh is recognised as a stripping activity asset.

4. Recognition of Stripping Activity Asset

Capitalisation of stripping costs as an asset is not automatic. It requires the satisfaction of specific conditions that ensure the existence of a genuine economic benefit.

Firstly, it must be reasonably expected that the activity will lead to future economic benefits, typically in the form of easier or more efficient access to ore deposits. Secondly, the entity must be able to clearly identify the specific portion of the ore body for which access has been improved. This “component” forms the basis for linking costs with future benefits. Finally, the costs attributable to the stripping activity must be capable of being measured with sufficient reliability.

Only when all these conditions are met can the stripping activity be recognised as an asset. This ensures that capitalisation is grounded in economic reality rather than mere expectation.

Let us consider that a mining entity incurs ₹300 lakh on stripping activities to access a deeper section of the ore body. The entity has geological data confirming that this section contains economically viable reserves, and the costs incurred can be clearly tracked to this specific area.

Since, future economic benefit is probable, the specific component of the ore body is identifiable, and costs can be reliably measured, the ₹300 lakh qualifies for recognition as a stripping activity asset.

However, if the entity is unable to clearly identify the specific area benefiting from the activity, the same cost would be expensed instead of being capitalised.

Click Here To Read The Full Article

The post [Opinion] Stripping Costs in Mining | Expense or Asset? appeared first on Taxmann Blog.

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Editorial Team – [2026] 185 taxmann.com 754 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. Finland to Introduce Tourist Tax to Boost Local Revenue

The Finland Ministry of Finance has evaluated the feasibility of introducing a tourist tax. Following a preliminary report and stakeholder consultations, the Government has decided to commence legislative drafting.

The proposed tax would allow municipalities in popular tourist destinations to generate additional revenue from tourism, with adoption left to their discretion. It would apply to short-term paid accommodation for both domestic and foreign travellers, ensuring equal treatment across accommodation types. The objective is to offset tourism-related municipal costs through a simple and clear tax model.

As a new levy, it will require enactment through legislation specifying the conditions for adoption. Tax proceeds will remain with the respective municipality. The tax is expected to be a moderate percentage of accommodation charges, with details to be finalised during drafting.

The Ministry has initiated drafting, and a proposal will be released for public consultation via Lausuntopalvelu.fi. If enacted in 2027, municipalities may implement it from 2028. No pilot project is proposed.

2. Australian Tax Office Updates Transfer Pricing Compliance Approach for Inbound Distribution Arrangements

On 23 April 2026, the Australian Taxation Office (ATO) published an updated Practical Compliance Guideline (PCG) setting out its compliance approach to transfer pricing issues arising in inbound distribution arrangements. The updated PCG builds on PCG 2019/1, which the ATO originally issued in 2019 and which introduced a risk-rating framework for assessing the transfer pricing risk profile of foreign-owned entities distributing goods in Australia. The 2026 update reflects evolving market conditions, updated benchmarking data, and operational lessons learned since the original guideline came into effect.

The ATO assesses the transfer pricing risk of inbound distribution arrangements by comparing the profit outcome—measured as earnings before interest and tax (EBIT) relative to sales—against industry-specific profit markers. Arrangements that fall within the designated “green zone” (low risk) are generally not subject to ATO compliance activity. A new “white zone” has been introduced in the updated PCG, providing a safe harbour for certain taxpayers that meet specified criteria, offering an additional tier of certainty for compliant arrangements. Arrangements falling in the higher-risk “red zone” remain subject to priority review and potential audit.

The updated guidance is of significant relevance to the many multinational groups that distribute goods into Australia through related-party arrangements with foreign manufacturers or principals. Transfer pricing in this context is a perennial area of ATO focus, and the refresh of the compliance framework signals continued scrutiny. MNE groups with inbound distribution arrangements in Australia should review their EBIT margins against the updated profit markers, assess their zone classification, and consider whether contemporaneous transfer pricing documentation adequately supports their pricing outcomes in line with the arm’s length standard.

Source – Australian Taxation Office

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