BOOKING HOME BEFORE JULY MAY LET YOU ESCAPE 3% TAX

Those looking to buy a house would do well to book one before July, when the new service tax levy on construction service will come into effect. The cost of flats will go up 3.3% of the total purchase consideration once service tax begins to be levied on construction. The government is considering exempting from tax flats booked before the notification of the expanded construction service, a finance ministry official told ET. "There is a case for giving relief to buyers who booked their houses before the service is notified... We are examining it," he said. So, a buyer who has booked a flat but will get possession only after the notification of the new service need not worry. A clarification to this effect may be issued when the tax is notified after the passage of the finance bill, he said. The Union Budget proposes to expand the definition of construction service and levy tax on houses under construction as well. The new rule, which will come into effect when Parliament approves the budget, says service tax would be imposed if payments were made before the completion of construction. Realty companies typically sell property before they begin construction and fear that the move will hit the sector hard as it would lead to a rise in home prices and depress demand. "The government must reconsider its decision to impose service tax on under-construction housing as the real estate industry is already paying 14-16% as indirect taxes. The current move will make affordable housing unaffordable in the future," said the DLF spokesperson. The government plans to include charges such as development fee, parking fee and premium location charges usually paid at the time of completion of construction in the base price. Only 33% of the base price of the flat will be chargeable to service tax levied at the rate of 10%, taking the effective tax to 3.3%. "Since an amendment has been made in an existing service already under tax net, there are diverse views whether this will be operative from a specific date after notification or treated as a clarificatory amendment roping in construction-linked payment plans of houses under construction," said Anil Kumar, CEO and deputy managing director, Ansal API. If it is to be operative from a prospective date, booking a house in the next 3-4 months may result in savings of up to 4% for a customer, he added. However, the government remains firm on levying the tax. Revenue secretary Sunil Mitra said the proposal would not hike prices by more than 3.5%, an increase that could be afforded by the customers. "Construction is a service. As a service, there is no reason why it should not be taxed," he said. "It is only 3% or 3.5% that gets added up (for the buyer)," Mr Mitra added. - www.economictimes.indiatimes.com

LONG-TERM CAPITAL GAINS MAY MAKE IT TO DTC REGIME

The government is likely to maintain the distinction between short term and long-term capital gains to encourage long-term savings, as it deliberates the draft direct taxes code. The finance minister said in his Budget speech that the new direct taxes law could be rolled out from April 1, 2011. The government is veering around to the view that the existing regime with regard to taxation of capital gains should be continued, a finance ministry official privy to discussions told ET. Long-term capital gains are taxed at concessional rates while short-term gains are taxed at the marginal rate of the tax payer and could be as high 30% for those in the highest slab. The tax treatment of shares is different from other assets. Currently, any stock market asset held for more 12 months is considered long-term capital assets but for all other assets have to be held for more than 36 months to be considered a long-term asset. Moreover, shares held for the long-term attract only the securities transactions tax while others assets are levied a long-term capital gains tax of 10%. The draft direct taxes code has proposed to tax capital assets irrespective of the period of holding. The entire capital gains of the assessee is proposed to be added to his income and taxed at the marginal rate. The Central Board of Direct Taxes, the apex direct taxes body, that examined the code threadbare has also favoured continuing with the current framework with regard to capital gains tax. Finance Minister Pranab Mukherjee has asked the CBDT to rework the draft code based on the feedback received from stakeholders before it is introduced in the Monsoon session. "There is surely an advantage to have different tax rates for long-term and or short, but that may not be the sole factor for an investor while undertaking a commercial transaction. Different factors including market conditions, requirement of funds, future expected realisations may have an over-arching impact on financial decision," said Vikas Vasal, executive director, KPMG. However, in case of stock market transactions, concessional rate of tax has been in place for some time now and long-term gains could be completely tax free except for small amount on STT. Even industry chambers have advocated continuing the existing regime for taxation of capital gains. "We will introduce the legislation sometime in the monsoon session. We have had discussions with all stakeholders and based on it I want to prepare a draft and place it for public comments once again before I introduce it," Mr Mukherjee had told ET earlier. - www.economictimes.indiatimes.com

GST WILL BRING DOWN COST OF MOST GOODS: GOVT

The government on Tuesday said the prices of most goods will declined with the implementation of the Goods and Services Tax (GST). "The proposed GST is likely to remove cascading of taxes and thus likely to reduce cost of most goods," Minister of State for Finance SS Palanimanickam told the Rajya Sabha in a written reply today. The rates of GST is yet to be finalised, he said, adding it will have two components--Central and state GST. The proposed GST, Palanimanickam said, "is likely to subsume multiple taxes and will help in moving towards achieving the objective of having a common national market". Finance Minister Pranab Mukherjee in his budget speech had indicated that the GST, the shape of which is being discussed by the empowered committee of state finance ministers, would be rolled out in April 2011. The 13th Finance Commission, in its recent report, asked the government to set aside Rs 50,000 crore to compensate the states for revenue losses on account of GST implementation. The empowered committee of state finance ministers is likely to meet Mukherjee next month to discuss the future course of action on GST. - www.economictimes.indiatimes.com

49 LAKH I-T REFUNDS PENDING: GOVT

The government today said around 49 lakh cases of income tax refunds are pending with the revenue department. "Total number of pending refund returns (up to January 2010 is 49 lakh. The statutory time limit to process the return and issue refund in financial year 2009-10 is March, 31, 2011," minister of state for finance SS Palanimanickam informed the Rajya Sabha in a written reply. Normally after receipt of returns, processing of returns and issuance of refund is completed in due course, he said, addding however, difficulties are encountered in some cases due to various reasons like wrong PAN, illegible recording of address, incorrect particulars about bank account etc. Pointing out that processing of refund is a continuous process, he said, the returns received during 2008-09 would be processed by March 31, 2010. Guidelines have been issued by CBDT to process all returns and issue refunds expeditiously. - www.business-standard.com

TAX MOP-UP MAY FALL SHORT OF TARGET, BUT GOVT WON'T HAVE TO BORROW MORE

The government could find it difficult to meet even its lowered tax revenue collection target for 2009-10, but a poor utilisation in some of the key schemes could ensure that it would not need to borrow more and stay within the budgeted fiscal deficit. The government admitted in reply to a question in Rajya Sabha that utilisation by flagship schemes remained poor in the current fiscal, only 62.4% by the end of December 2009. The net direct tax collections for the first 11 months of the current fiscal (April-February, 2010) was Rs 2,78,373 crore. The fourth quarter advance tax payment may not be enough to make up the over Rs 1 lakh crore needed to meet the Rs 3.87 crore revised target for 2009-10. "Initial trends indicate it may be an uphill task to collect more than Rs 1 lakh crore in March," a government official told ET, adding that the revenue department, the Central Board of Direct Taxes and the Central Board of Excise and Customs were monitoring the tax collections very closely. The government is unlikely to be unduly worried as many of its schemes are may find it difficult to spend their budgetary allocation. "I don't know why a scheme such as the Pradhan Mantri Gram Sadak Yojana should do pretty okay, while one like the National Rural Employment Guarantee Scheme should not. Performance of JNNURM has also been disappointing," Planning Commission secretary Sudha Pillai had told ET recently. The mid-term appraisal of the eleventh five year plan, which is expected later in the month, would throw more light on the performance issues. The government had revised its tax collection estimates for 2009-10 to Rs 4,65,103 crore, Rs 9,115 crore lower than the budget estimate of Rs 4,74,218 crore. It had raised the direct taxes collection target to Rs 3,87,000 as against budget estimate of Rs 3,70,000 crore but lowered that for indirect taxes to Rs 2,44,477 crore. It seems the government may find it difficult to meet the revised target for both, though the final collection for direct taxes could be more than Rs 3,70,000 crore budgeted initially. The indirect tax collection data for February is still being compiled by the ministry but the initial trends are not very encouraging, an official said pointing that the collections may catch up in March. The total indirect tax collection for April 2009 -January 2010 was Rs 1,88,580 crore (this includes service tax collection for December and not collection for January as data comes with a month lag). However, customs collections may provide some respite in this case following reimposition of customs duty and excise duty on fuels. - www.economictimes.indiatimes.com

COST ACCOUNTING STANDARDS TO COME INTO EFFECT FROM APRIL 1

Ten cost accounting standards have been formulated, six of them are mandatory, which will come into effect from April 1 and three more are likely to be added, according to Mr K. Narasimha Murthy, Director of IDBI and LIC Housing Finance. He was delivering the key-note address at a seminar on 'Effective corporate environment - best practices for costing,' organised here on Friday by the Institute of Cost and Works Accountants, Visakhapatnam chapter. Mr Murthy was a member of the Goel Committee appointed by the Union Government to make recommendations for laying down cost accounting standards. He said in all, 28 cost auditing standards may come into force in the next two years and it would make for better cost auditing. India did not have a cost audit for government expenditure. "The importance of a cost audit cannot be overemphasised and in most countries there is a strict cost audit even for Government expenditure. The Government is the biggest spender and, therefore, cost audit is absolutely essential," he said. He said in a globalised economy, business cycles were becoming frequent and it was becoming increasingly difficult to foresee demand and supply for any product. Therefore, cost-cutting was of the essence. He called for good corporate governance and performance governance to maximise stakeholder value. There was also need for effective risk management systems. Mr Ajeya Kallam, Chairman of the Visakhapatnam Port Trust, said costing was not given much importance, especially in the public sector units. The decision to merge the Dock Labour Board (DLB) with the Visakhapatnam Port Trust (VPT) was one such decision when costing was not taken into account, he said. The port was served a notice for paying Rs 30 crore in income-tax soon after the merger. The DLB had to pay the IT and apart from that, the VPT had to set apart Rs 100 crore for wage settlement. After all that, it was found to be unviable and the workers had to be given VRS. "It was a political decision imposed on us from above with no regard to the costing norms," he said. Mr Satyananda Rao, Chairman of the Vizag chapter of the Institute of Cost and Works Accountants, also spoke on the occasion. - www.thehindubusinessline.com

GOVT AIMS AT GST ROLLOUT BY APRIL 2011

The Centre said it will persuade states to reach a consensus on the Goods and Services Tax so that it can be implemented from April 1 next year. "It shall be the endeavour of the Government of India to persuade the state governments and the empowered committee of state finance ministers to reach a consensus so that the GST can be introduced with effect from April 1, 2011," Minister of State for Finance S S Palanimanickam informed the Lok Sabha in a written reply. He said the implications of the goods and services tax, which will replace most of the indirect taxes at the central and the state level, can be assessed only after the basic design is finalised. A joint working group comprising officers of the central government, state governments and the Empowered Committee of States Finance Ministers has been constituted to prepare the draft of the constitutional amendments, central GST legislation, model state GST legislation and related rules. GST implementation has been deferred from its earlier date of April 1, 2010. Empowered Committee of state finance ministers (EC) has prepared and released the first discussion paper on the Goods and Services Tax in India in November 2009. - www.financialexpress.com

I-T DEPT ALERTS TAXPAYERS AGAINST SHARING FINANCIAL DETAILS ON NET

The IT department has alerted tax-payers against sharing personal financial information like PAN card number and credit cards details on the internet in the wake of a spurt in fake e-mails being sent to people. Concerned over fictitious and unauthorised e-mails landing in personal internet addresses of many people, the department has issued an "alert message". The technical and systems wing of the department is also adding a word of "caution" at the end of each mail sent under its name. "A number of taxpayers have received e-mails with subjects like 'tax refund' and 'seeking refunds' prompting us to take such measures. Such messages continue to land in big numbers in individual e-mails," a senior official of the department said. "Information has been received from several quarters that people are receiving electronic mails informing them of their income tax refunds and seeking their credit card details. "It is clarified that the department does not send e-mails regarding refunds and does not seek any information regarding credit cards of taxpayers. Taxpayers are therefore cautioned that they should not respond to such mails and if they do so it would be at their risk and responsibility," the department's "alert" message said. These are some of the e-mail IDs which have been found to be fake. Unauthorised e-mail addresses could be more than the reported ones and hence taxpayers should avoid them. The IT department mail is only to be read to keep oneself updated but not to be replied to, the official said. "Income Tax department does not send e-mails regarding refunds and does not seek any taxpayer information like user name, password, details of ATM, bank accounts, credit cards, etc. Taxpayers are advised not to part with such information on the basis of e-mails," the department has said at the end of its e-mails. In case of genuine IT e-mails, they have been appended with a note saying "this is a computer generated mail and calls for no signature," the official said. The department has also advised tax-payers to keep their user ID and password secure, not share them with any other entity and suggested that the password be changed periodically when checking tax credit statements online. - www.economictimes.indiatimes.com

I-T SLABS MAY BE FURTHER RAISED IN DTC: FINMIN

Having altered the income tax slabs in the Budget, the Finance Ministry on Thursday said the next round of widening of the tax slabs is possible when the direct taxes code comes into effect, likely from 2011-12. "A further widening (of tax slabs) is possible. But this will happen when revised (draft direct taxes code) paper comes," revenue secretary Sunil Mitra told reporters on the sidelines of a CII seminar here today. The Finance Ministry has already come out with the draft direct taxes code, but since there are a number of grievances on it, it will come out with a revised draft in the first quarter of next fiscal so that a bill to this effect can be tabled in the Monsoon session of Parliament. "The period is going to be between April and June. That is when we have time for this process, if we were to get the legislative process commencing from around July during the Monsoon session. The Finance Minister has said he would like to take the legislative process. The only time we have is between April and June," Mitra said. In a Rs 21,000-crore bonanza, the Budget has widened the income tax slabs for all. While there would be no tax for income up to Rs 1.6 lakh, a tax of 10 per cent would be levied for income up to Rs 5 lakh, 20 per cent for up to Rs 8 lakh and 30 per cent beyond that level. - www.economictimes.indiatimes.com

DIRECT TAX FETCHES RS 2.78 LAKH CRORE TILL FEBRUARY

The government has collected Rs 2.78 lakh crore from direct taxes till February, short by Rs 1 lakh crore to meet the target set for the fiscal.The direct tax collections were up 7.52 per cent in the first 11 months against Rs 2.58 lakh crore in the same period last fiscal.The Finance Ministry officials are confident that direct tax collection target of Rs 3.87 lakh crore, revised from Budget estimate of Rs 3.70 lakh crore, for the current fiscal would be met as taxpayers are likely to give more than a lakh crore in the last month.The last installment of advance tax payment is also expected by March 15. Corporate taxpayers are required to pay 25 per cent and non-corporate taxpayers 40 per cent of their advance taxes in March.During February, growth in direct tax collections was 27. - www.presstrustofindia.com

DIRECT TAX CODE TO BE LAUNCHED IN MONSOON SESSION

The legislation for a direct tax code will be introduced in the monsoon session of parliament, the country's revenue secretary Sunil Mitra said on Friday. - www.economictimes.indiatimes.com

TAX ONLY WHEN INTEREST CREDITED TO FIXED DEPOSITS: CBDT

No income tax at source will be deducted if banks have only made a provision for interest on fixed deposits and not actually paid it to the depositor, the Finance Ministry has clarified. Until now, tax was supposed to be deducted by banks even if only provisioning was made for interest payment. However, this was creating problems for banks using Core-Branch Banking Solutions (CBS), which enables customers to access their accounts from any branch. The Indian Banks' Association in a representation to the Income Tax department had said that for banks using the CBS software, interest payable on fixed deposits is calculated generally on a daily or a monthly basis but is parked in the provisioning account for monitoring only. The interest is actually credited to the depositor's account either at the end of the financial year or at periodic intervals or on maturity of the deposits. The matter was considered by the Central Board of Direct Taxes to plug this loophole. According to a Finance Ministry official, CBDT clarified that since no credit is given to the depositors while calculating interest on fixed deposits on daily or monthly basis in the CBS software used by banks, tax need not be deducted at source on such provisioning of interest. "In such cases, tax shall be deducted at source on accrual of interest," the board clarified, according to a source. Income tax is charged at the rate of 10 per cent on interest income of more than Rs 10,000 in a year. - www.economictimes.indiatimes.com

STATES SEEK RS 1 LAKH CR FOR GST SWITCH

States are demanding that Central government double the compensation proposed by the Finance Commission to implement the already delayed Goods and Services Tax as the ``Grand Bargain'' is leading to stiffer demands. The Empowered Committee of State Finance Ministers is set to demand a compensation of Rs 1-lakh crore to adopt the GST, which is seen as the biggest ever tax reform in the nation which may also lead to a fall in revenues for some states. The committee will take up the issue with the Finance Minister Mr Pranab Mukherjee in early April, one of the members of the committee told ET. The government has been negotiating with the states to implement the GST as it attempts to do away with the anomalies prevailing in the current structure where goods and various services are taxed more than once by state and central government agencies. To avoid the ``tax-on-tax'', states are seeking more funds from the central government as the implementation may lead to lower tax revenues for them. The tax which was supposed to take effect April, 2010, is delayed by a year due to disagreements. The central government had accepted the 13th Finance Commission recommendations on revenue sharing with states, which the states said ``ignored'' their demands. It suggested paying of Rs 50,000 crores to states to agree for GST. The implementation of the tax requires co-operation from states as it involves amending laws. The Committee will also ask the finance minister to change the amortisation schedule of the compensation, the person said. The April-meeting will also be the first one with Mr Mukherjee after the commission report. "Some states have raised fresh demands for a higher compensation. Accordingly, we are planning to make a case for that," Asim Dasgupta, the chairman of the Empowered Committee of the State Finance Ministers told ET recently. The Committee had earlier sought Rs 80,000 crores. He had said the Commission's suggestion to peg compensation at Rs 50,000 crore "was largely insufficient". Mr Dasgupta, who is also West Bengal's finance minister, believes that bulk of the compensation should be available to the state governments in the first two years of the proposed GST regime instead of equated annual payment over five years. "We are requesting disbursement of a significant chunk of the compensation in the first couple of years since that is the time when the impact is felt the most,'' he had said. - www.economictimes.indiatimes.com

RISING TAX ARREARS A CONCERN: REVENUE SECY

The Finance Ministry today expressed concern over huge amount of tax arrears and said it plans to address the issue soon. "The huge amount of pending tax arrears not under dispute is certainly a matter of concern and one of the issues we will address soon. We will sit together with both the direct and indirect tax officials and local officials in Mumbai to find a solution," Revenue Secretary Sunil Mitra told reporters at a CII function here today. "The amount under dispute is a concern but the amount which is not under dispute is a bigger concern," he said, without divulging the exact amount of arrears. On the Government's disinvestment plan, Mitra said that the government was confident of achieving the target of Rs 40,000 crore through disinvestment of public sector undertakings in the next financial year. "I honestly do not think there is a problem going forward with the (disinvestment) projection of Rs 40,000-crore in the next fiscal. It can be achieved," Mitra said. This year, so far, the Government has made disinvestment in four PSUs -- NTPC, NHPC, Oil India and REC and with NMDC issue, it is expected to garner up to total Rs 25,000-crore through the disinvestment of NMDC. - www.financialexpress.com

NEW DRAFT POLICY ON AFFORDABLE HOUSING IN RURAL AREAS

The government has drafted a new policy aiming to ensure adequate and affordable housing for all in the rural areas, Lok Sabha was informed today. "A National Rural Housing and Habitat Policy has been drafted by the ministry after wide consultation with the stakeholders including state governments, bankers etc... The draft policy is at consultation stage with the Planning Commission," minister of state for rural development Pradeep Jain Aditya said in written reply to a question in the Lower House. "The goal of the proposed policy is to ensure adequate and affordable housing for all in the rural areas," he said. The draft policy also aims to facilitate development of sustainable and inclusive habitats in rural areas by expanding government support, he said. It seeks to promote community participation, self help and public private partnership within the framework of Panchayati Raj, he added. The minister, however, replied in negative to a question whether the government has formulated or proposes to formulate a national rural housing policy and housing guarantee scheme on the lines of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). - www.business-standard.com

ADVANCE TAX OUTGO TO RAISE CALL MONEY RATES

The overnight interbank call money rate-the rate at which banks lend to each other-could rise briefly by the end of the current fiscal, reaching as much as 4.75%, which is the Reserve Bank of India's (RBI) repo rate-the rate at which banks borrow from RBI.The overnight interbank borrowing rate on Thursday was 3.3%. The rate is set to rise because of an anticipated decline in liquidity on the outflow of advance tax payments and higher cash reserve requirements set for banks by RBI, according to money market watchers.In its January monetary policy announcement, RBI had raised the cash reserve ratio (CRR)- the portion of deposits banks must keep with RBI-by 75 basis points (one basis point is one-hundredth of a percentage point) to 5.75% in two phases ended 27 February. This drained Rs36,000 crore from the system.Despite this, banks continued to park large amounts with RBI. The surplus liquidity after the CRR hike peaked to Rs84,520 crore on 5 March. On Wednesday, it was Rs83,605 crore, but fell by more than half on Thursday when banks parked only Rs39,225 crore.The reason for the fluctuation, according to bankers and bond dealers, is the way banks manage their excess funds ahead of every alternate Friday-when they must report their CRR levels to RBI.On other days, though, they need to maintain only 70% of the reported amount. Since banks prefer to report full cash requirements closer to reporting Fridays, this raises call rates if there is not enough liquidity.The remaining amount is parked with RBI's liquidity adjustment facility (LAF) window that offers 3.25%. CRR requirements carry zero interest."The amounts seen in (the) LAF window may not reflect the true picture," said A. Prasanna, chief economist of ICICI Securities Primary Dealership Ltd, a bond trading house. "The system liquidity after the CRR hike should be around Rs65,000 crore as per our estimate."S. Srikumar, a bond dealer for Corporation Bank, said the impact on liquidity due to advance tax outflow beginning 15 March will be about Rs45,000 crore.In such a scenario, the interbank call money rates may touch the repo rate of 4.75%, the theoretical upper end of RBI's rate corridor, where all interbank rates ideally should be. "That is because distribution of liquidity could be skewed and some banks may have to borrow at the repo window," Prasanna said.However, ING Vysya Bank Ltd economist Deepali Bhargava expects the interbank rates to rise only marginally as the government will push through higher spending to meet its year-end obligations, including spending on. - www.livemint.com

CHARGE MAXIMUM PENAL AMOUNT ON TDS DEFAULTERS: CBDT

The Central Board of Direct Taxes (CBDT) today directed its field formation to levy the highest penal rate of tax on TDS (tax deducted at source) defaulters. Following a sharp shortfall in revenue from TDS collection, the Income Tax Department has launched a massive drive across the country to detect and inquire into TDS payments of companies - especially on payments made and salaries disbursed. Tax searches have revealed that several small and medium scale companies, deducted tax on various payments but failed to deposit the amount with the department. In such cases, it has been decided by the board that the departments can charge the highest level of penal rate of tax - that is 300 per cent. Besides, the income tax department has disallowed all expenses incurred by third party administrator companies (TPAs) across the board. The existing practice is to deduct the expenses from the total earnings before arriving at the taxable income. Department officials said the decision to disallow the expenses have been taken since they do not deduct tax while paying premium to the insurance companies. The department has raised around Rs 117 crore in TDS amount from six TPAs. The disallowance of expenses comes under section 40I(a)(i) of the Income tax Act 196 that is invoked for non payment of TDS. Officials said a similar amount has been disallowed as deduction from income. Searches have revealed that TPAs have not been deducting TDS on premium payments, even though the CBDT had come out with a separate notification to charge TDS on premium payments made by TPAs. TPAs are third party administrators who processes insurance claims and provides certain aspects of employee benefits for a separate entity. While the CBDT has collected Rs 35,510 crore from TDS in the Mumbai region this financial year (against total tax collections of Rs 98,550 crore), for the same period last year they had recovered Rs 36,312 crore (from the total regional collection of Rs 93,000 crore). The target for collection of TDS in the current financial year for the region is Rs 58,000 crore. About 40 per cent of Mumbai's total tax collections are from TDS, and the region also makes for the bulk of the all-India collections under this head. Earlier, the department had conducted a survey of all major mobile telecom companies, with the idea of taxing discounted cash cards sold to retailers. Mobile companies sell cash cards to retailers at a discounted rate but then these are sold to customers at the maximum retail rate, earning a profit. "The companies should have deducted tax before selling cash cards to retailers," said an official. - www.business-standard.com

ADVANCE TAX COLLECTION MAY GO UP 15-20% IN FOURTH QUARTER

Advance tax collections for the January to March quarter may see a rise of 15-20 per cent against the total collections for the corresponding period, last year. According to preliminary indications, the automobile and pharmaceutical sectors are expected to lead the list. However, banks, especially public sector and foreign banks, and oil marketing companies will be laggards due to their indifferent performance. Tax officials said the dividend distribution tax (DDT) paid by mutual funds for the current financial year has also not been satisfactory. But officials added that the March quarter may see some revival in DDT payments. Meanwhile, companies have recently been notified to adjust the Fringe Benefit Tax (FBT) amount paid in advance tax installment in the fourth installment, following the decision to withdraw FBT. "While this will help the companies in adjusting their tax liability for the current year, it means that the government will get less money to that extent," said a senior CBDT official. According to projections made by the department, based on its discussion with companies, State Bank of India is expected to pay around Rs 1,600 crore for the fourth quarter as against Rs 1,038 crore last year and Reliance Industries Ltd is expected to pay a total tax of Rs 770 crore for the fourth quarter as against Rs 365 crore a year ago. Tata Steel is likely to pay Rs 720 crore (from Rs 420 crore last year). Among Tata group of companies, Tata Motors, which paid zero tax in the fourth quarter of last year due to losses, is expected to pay a good amount following the revival of the sector. Similarly, Bajaj Auto is expected to pay around Rs 160 crore (from Rs 60 crore last year). The large tax payer unit, however, is witnessing satisfactory collections and the total amount contributed by these units are expected to go up from Rs 6,383 crore in 2009-10 to Rs 8,705 crore in 2010-11. The March quarter collection may go up from Rs 1484 crore to Rs 2070 crore. Union Bank of India is likely to pay Rs 172 crore (Rs 153 crore), while Bank of Baroda might pay Rs 300 crore (Rs 280 crore). Bank of India is expected to make a total tax payment of around Rs 700 crore as against Rs 1,200 crore paid in the same period last year. The Rs 602 crore that has already been paid till the December quarter is being considered a pittance, said sources. IDBI bank might pay around Rs 187 crore (Rs 63 crore). Oil marketing companies have also given assurances to make payments following the cash subsidy from the government, since oil bonds may not be issued, said official sources. A company is expected to pay 25 per cent of the total taxes in each quarter. Other companies, which are expected to make good contributions, are a host of sugar companies, Lupin and HDFC Bank. Officials said bank profits have suffered due to an erosion of the market value of investments in government securities due to the higher supply of government securities in the new financial year. Banks are exiting government securities investments to create room for new investments. As a consequence, there is heavy selling and subsequently a decline in the value of securities. In a massive drive to boost advance tax collections, the tax department has persuaded companies to pay full tax in this quarter. This means if the total tax to be paid on income is higher than the four installments of advance taxes, these companies should pay the entire tax in this quarter. Usually, the tax is paid when returns are filed in the following financial year. Advance tax is a staggered mode of payment of total taxes by companies which is paid in four quarterly installments. - www.business-standard.com

Service Tax : Export.of Services Rules amended

• Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006  are being amended so as to move some of the specified taxable services from one category to another.
• In the Export of Services Rules, 2005, the condition prescribed i.e. ‘such service is provided from India and used outside India’ is being deleted.
• Notification No. 1/2002-ST dated 01.02.2002 is being superceded by another notification to provide that the construction and operation of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oils and natural gas in the Exclusive Economic Zone and the Continental Shelf of India and for supply of any goods connected with these activities would be within the purview of the provisions of Chapter V of Finance Act, 1994. Suitable changes are being made in the Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
• Notification No. 5/2006-CE (NT) is being amended and given partial retrospective effect to remove the bottlenecks in refund of accumulated credit to the exporters.

The above changes will come into effect immediately.

Service Tax : Exemptions

• Statutory taxes charged by the foreign governments are being excluded from taxable value for levy of service tax under the Air passenger transport service.
• Exemption from service tax is being provided to services relating to ‘Erection, Commissioning or Installation’ of,-

(a) Mechanized Food Grain Handling Systems etc.;
(b) Equipment for setting up or substantial expansion of cold storage; and
(c) Machinery/equipment for initial setting up or substantial expansion of units for processing of agricultural, apiary, horticultural, dairy, poultry, aquatic, marine or meat products.

1. Pre-packaged I.T. software, with the license for right to its use, is being exempted from service tax, subject to specified

• conditions.
• At present exemption from service tax is available to transport of fruits, vegetables, eggs or milk by road by a goods transport agency. The scope of exemption is being expanded to include food grains and pulses in the list of exempted goods.
• Exemption from service tax is being provided to Indian news agencies under ‘Online Information and Database Retrieval Service’ subject to specified conditions.
• Exemption from service tax is being provided to the ‘Technical Testing and Analysis Service’ and ‘Technical Inspection and certification service’ provided by Central and State seed testing laboratories, and Central and State seed certification agencies.
• Exemption from service tax is being provided to the transmission of electricity.

The above changes will come into effect immediately.

• Exemption from service tax on ‘Service provided in relation to transport of goods by rail’ is being withdrawn. The levy will come into effect from 01.04.2010.
• Exemption from service tax, presently available to Group Personal Accident Insurance Scheme provided by Govt. of Rajasthan to its employees, under General Insurance Service is being withdrawn.
• The exemption from service tax on ‘Commercial training or coaching service’ is being restricted to vocational training courses in the designated Trades notified under the Apprentices Act, 1961.

The above changes, except regarding Travel by Rail, will come into effect immediately.

Service Tax : Recovery Provisions

Chapter V of the Finance Act, 1994 is being amended to,-
a) insert an explanation in sub-section (3) of Section 73 to clarify that no penalty shall be imposed where service tax along with interest has been paid before issuance of notice by the department under this sub-section.
b) provide definition of the term ‘business entity’ to include an association of persons, body of individuals, company or firm but not an individual.

Service Tax: Enlargement of scope of certain Services

1) The scope of air passenger transport service is being expanded to include domestic journeys, and international journeys in any class.
2) At present, in the case of Information Technology Software Service the levy of tax is limited only to cases where IT software is used for furtherance of business or commerce. The scope of the taxable service is being expanded to cover all cases irrespective of its use.
3) In the case of ‘Commercial training or coaching’ service, an Explanation is being added to clarify that the term ‘commercial’ in the context of this service would mean any training or coaching, which is provided for a consideration, whether or not for profit. This change is being given retrospective effect from  01.07.2003.
4) In the definition of ‘Sponsorship Service’, the exclusion relating to sponsorship pertaining to sports is being removed.
5) In the ‘Construction of complex service’, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly.
6) Amendments are being made in the definition of the ‘Renting of immovable property service’ to,-
(i) provide explicitly that the activity of ‘renting’ itself is a taxable service. The change has been given retrospective effect from 01.06.2007; and
(ii) levy service tax on rent of vacant land where there is an agreement or contract between the lessor and lessee for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease.
7) Definitions of ‘Airport Services, ‘Port services’ and ‘Other port services’ are being amended to provide that,-
(a) all services provided entirely within the airport/port premises would be classified under these services; and
(b) an authorization from the airport/port authority would not be a pre-condition for taxing these services.
8) An explanation is being added in ‘Auctioneer’s service’ to clarify that the phrase ‘auction by government’ means an auction involving sale of government property and not when the government acts as an auctioneer for sale of the private property.
9) Definition of ‘Management of Investment under ULIP Service’ is being amended to provide that the value of the taxable service for any year of the operation of policy shall be the actual amount charged by the insurer for management of funds under ULIP or the maximum amount of fund management charges fixed by the Insurance Regulatory and Development Authority (IRDA) whichever is higher.
The above changes will come into effect from a date to be notified, after the enactment of Finance Bill, 2010.

Service Tax on New Services

SERVICE TAX IS BEING IMPOSED ON THE FOLLOWING SPECIFIED SERVICES:

1. Service of permitting commercial use or exploitation of any event organized by a person or organization.

• The existing taxable service ‘Intellectual Property Right (IPR)’ excludes copyright from its scope. Copyrights on (a) cinematographic films and (b) sound recording are being brought under the ambit of service tax. However, copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax.

1. Service tax on the following health services:

(a) health check up undertaken by hospitals or medical establishments for the employees of business entities; and
(b) health services provided under health insurance schemes offered by insurance companies.
(The tax on these health services would be payable only if the payment for such health check up or preventive care or treatment etc. is made directly by the business entity or the insurance company to the hospital or medical establishment).

• Service provided for maintenance of medical records of employees of a business entity.
• Service provided by Electricity Exchanges.
• Certain additional services provided by a builder to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges. However, service of providing vehicle-parking space would not be subjected to tax.
• Service of promoting of a ‘brand’ of goods, services, events, business entity etc.
• The promotion, marketing or organizing of games of chance, including lottery, is being introduced as a separate service. Consequently, the Explanation in provision relating to Business Auxiliary Service is being deleted.

The above changes will come into effect from a date to be notified, after the enactment of Finance Bill, 2010.

DOCUMENT IDENTIFICATION NUMBER [CLAUSE 51 OF THE BILL]

Section 282B (Allotment of Document Identification Number) is a new section inserted by the Finance (No. 2) Act, 2009 in the Income-tax Act with effect from 1st October, 2010.
Under the provisions of this section, an income-tax authority is required to allot a computer generated Document Identification Number before issue of every notice, order, letter or any correspondence to any other income-tax authority or assessee or any other person and such number shall be quoted thereon. It also provides that every document, letter, correspondence received by an income-tax authority or on behalf of such authority, shall be accepted only after allotting and quoting of a computer generated Document Identification Number.
In order to cover the entire gamut of services mentioned in section 282B on a pan-India basis, it would be essential to have the requisite infrastructure and facilities in place.
It is proposed to amend the provisions of section 282B so as to provide that Document Identification Number will be required to be issued on or after 1st July, 2011.
This amendment is proposed to take effect from 1st October, 2010.

RATIONALISATION OF PROVISIONS RELATING TO TAX DEDUCTION AT SOURCE (TDS)

RATIONALISATION OF PROVISIONS RELATING TO TAX DEDUCTION AT SOURCE (TDS)[CLAUSES 35 TO 41 OF THE BILL]
            Under the scheme of deduction of tax at source as provided in the Income-tax Act, every person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within the specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limits.
In order to adjust for inflation and also to reduce the compliance burden of deductors and taxpayers, it is proposed to raise the threshold limit for payments mentioned in sections 194B, 194BB, 194C, 194D, 194H, 194-I and 194J as under:

These amendments are proposed to take effect from 1st July, 2010.

CENTRALISED PROCESSING OF RETURNS [CLAUSES 31 AND 34 OF THE BILL]

Under the existing provisions of section 143(1B), the Central Government may, for the purposes of giving effect to the scheme of centralised processing of returns under section 143(1A), issue a notification relating to such processing of returns. Such a notification can be issued up to 31st March, 2010. A Centralised Processing Centre has been set up where returns are being processed in batches. However, some more functionalities in the processing of returns may need to be added to make it a complete end-to-end process. Therefore, it is proposed to extend the time limit for issue of such notification under section 143 (1B) from 31st March, 2010 to 31st March 2011. Consequential amendments on similar lines are proposed to be made in section 115WE of the Income-tax Act. These amendments are proposed to take effect retrospectively from 1st April, 2010.

DEDUCTION IN RESPECT OF CONTRIBUTION TO THE CENTRAL GOVERNMENT HEALTH SCHEME [CLAUSE 25 OF THE BILL]

Under the existing provisions of section 80D, deduction in respect of premium paid towards a health insurance policy upto a maximum of Rs. 15,000 is available for self, spouse and dependent children. A further deduction of Rs. 15,000 is also allowed for buying an insurance policy in respect of dependent parents. The deduction is enhanced to Rs. 20,000 in both cases if the person insured is of age of 65 years or above. The Central Government Health Scheme (CGHS) is a medical facility available to serving and retired Government servants. This facility is similar to the facilities available through health insurance policies. It is, therefore, proposed to also allow deduction in respect of any contribution made to CGHS by including such contribution under the provisions of section 80D. The deduction will be limited to the current aggregate as mentioned in the section. This amendment is proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

DEDUCTION IN RESPECT OF LONG-TERM INFRASTRUCTURE BONDS [CLAUSE 24 OF THE BILL]

            The proposed new section 80CCF in the Income-tax Act provides that subscription during the financial year 2010-11 made to long-term infrastructure bonds (as may be notified by the Central Government), to the extent of Rs. 20,000, shall be allowed as deduction in computing the income of an individual or a Hindu undivided family. This deduction will be over and above the existing overall limit of tax deduction on savings of upto Rs.1 lakh under section 80C, 80CCC and 80CCD of the Act. This amendment is proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12. The words “subscription” in proposed section 80CCF are important. It seems deduction will be apply only to those who obtain these bonds by application and allotment process and not to those who acquire it from an existing holder of these bonds.

INCREASE IN LIMIT OF TURNOVER OR GROSS RECEIPTS

INCREASE IN LIMIT OF TURNOVER OR GROSS RECEIPTS FOR THE PURPOSE OF AUDIT OF ACCOUNTS AND FOR PRESUMPTIVE TAXATION [CLAUSES 14,15 AND 50 OF THE BILL]

Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed forty lakh rupees in the previous year. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed ten lakh rupees in the previous year. In order to reduce compliance burden of small businesses and professionals, it is proposed to increase the aforesaid threshold limit from forty lakh rupees to sixty lakh rupees in the case of persons carrying on business and from ten lakh rupees to fifteen lakh rupees in the case of persons carrying on profession.
It is also proposed to increase the maximum penalty, leviable under section 271B for failure to get accounts audited under section 44AB or to furnish a report of such audit, from one lakh rupees to one lakh fifty thousand rupees.
It is also proposed that for the purpose of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from forty lakh rupees to sixty lakh rupees. These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

Bangalore Chamber moots centralised body to assess goods, services tax

Setting up of a centralised assessment authority, staggering the introduction to April 2011 and setting clear road maps for the implementation of the Goods and Services Tax are some of the important suggestions made by the Bangalore Chamber of Industry and Commerce (BCIC) to the Union Government.

ON NEW SCHEDULE
Stressing its point, the new schedule, BCIC said, with the country on the threshold of adopting two other major changes such as International Financial Reporting System and the new Direct Tax Code by 2011, it would only be apt to align the GST also with that schedule for a greater harmony in the administration of fiscal measures and accounting systems.

CASCADING EFFECT
Highlighting some of the key suggestions made in a note based on its analysis of the discussion paper issued by the Empower Committee of the State Finance Ministers, Mr S. Balakrishnan, Chairman, Indirect Taxes Expert Committee, BCIC, told Business Line that no taxing system could completely eliminate the cascading effect.

ON GST
He, however, said that the proposed GST would certainly minimise the effect. Though GST envisages simple structure to levy, collect and administer the taxes in the country, it should be supported by a single authority for assessment and administration of levy of taxes to eliminate litigation to reduce costs of assessment and collection facilitating smoother compliance.

EXEMPTIONS
He said while minimum threshold rates and least exemptions would help in achieving higher efficiencies, it was also imperative that all the States joined hands while implementing GST to remove the confusion in the existing originating and destination principles to avoid levy of taxes twice.

INTRODUCTION OF GST CODE
Introduction of the GST code with complete consensus would make it impractical for any change. A comprehensive GST code with least ambiguities would help the country emerge as an attractive manufacturing base.

ON REVENUE LOSS
Mr S. Venkataramani, State Taxes Expert, BCIC, said the argument that GST would result in huge revenue losses due to the subsuming of several existing taxes was not entirely correct as borne out by the buoyancy of tax collection since the reduced rates of Central Sales Tax and value-added tax system had been in practice.

BRIDGING GAP
Revenue loss of laggard states in the North and North East could still be bridged by stronger macro economic polices of more investments in critical sectors of infrastructure and industrialisation, apart from short term devolution of funds. - www.thehindubusinessline.com

I-T dept cannot re-open assessment cases arbitrarily: SC

In a reprieve to the assessees, the Supreme Court has ruled that the Income-Tax Department cannot re-open the assessment cases arbitrarily but on the basis of some ‘tangible material‘. If armed with unrestricted power to re-open the cases against assessees, it will amount to review of the assessment by the assessing authority, said the apex court. "Re-assessment has to be based on fulfilment of certain pre-condition and if the concept of ‘change of opinion‘ is removed, as contended on behalf of the department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of ‘change of opinion‘ as an in-built test to check abuse of power by the assessing officer", said a three-judge bench headed by justice SH Kapadia. According to section 147 of the Income-Tax Act amended by virtue of the Direct Tax Laws (Amendment) Act of 1989 which came into effect from April 1, 1989, cases could be re-opened if the assessing officer has reason to believe that the income has escaped assessment. The court, however, said: "One needs to give a schematic interpretation to the words ‘reason to believe‘ failing which, we are afraid, section 147 would give arbitrary powers to the assessing officer to re-open assessments on the basis of ‘mere change of opinion‘, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The assessing officer has no power to review; he has the power to re-assess". The court noted that after April 1, 1989, the assessing officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. However, reasons must have a live link with the formation of the belief, it said. The court dismissed a bunch of appeals of the Income-Tax Department against the assessees. The issue before the court was whether by virtue of the Direct Tax Laws (Amendment)Act of 1989, the condition of ‘change of opinion‘ stood obliterated for re-opening of assessment cases. The court pointed out that under Direct Tax Laws (Amendment) Act,1987, the words ‘reason to believe‘ was deleted and the word ‘opinion‘ was inserted in section 147 of the Act. However, on receipt of representations from the companies against omission of the words ‘reason to believe‘, Parliament re-introduced it and deleted the word ‘opinion‘ on the ground that it would vest arbitrary powers in the hands of assessing officer. To substantiate its order, the apex court also perused a circular issued by the government on October 31, 1989 reiterating the same thing. Prior to Direct Tax Laws (Amendment) Act, 1987, the assessing officer was empowered to make back assessment on fulfilment of two conditions. But section 147 of the Act was amended which came into effect from April 1, 1989, these two conditions were given a go-by. The only condition remained was that where the aing officer has reason to believe that income has escaped assessment, it confers jurisdiction to re-open the assessment. Therefore, after April 1, 1989, the revenue‘s power to re-open the cases was widened. According to the unamended section 147 of the Act, on fulfilment of two conditions, the assessing officer was empowered to re-open the cases. First, if the assessing officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return under section 139 of the Act for any assessment year to the income-tax officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year. Second, notwithstanding that there has been no omission or failure on the part of the assessee, the income- tax officer has in consequence of information in his possession has reason to believe that income chargeable to tax has escaped assessment for any assessment year. - www.economictimes.indiatimes.com

Govt to net Rs 1,400 cr as tax from pay arrears to staff

The government will mop up Rs 1,400 crore this fiscal by taxing the second instalment of arrears due to central government employees, who were awarded increased salaries by the Sixth Pay Commission. The first instalment of arrears (representing 40 per cent of the increased pay) was disbursed during financial year 2008-09. The employees will also have to pay two per cent education cess on the total amount of the arrears. "The total arrears for this fiscal is Rs 18,000 crore. The arrears that would fall in the tax net would be about Rs 9,000 crore. Barring the grade-IV employees, and according to calculations, around 15 per cent of this amount-- about Rs 1,400 crore (plus education cess) would go into government‘s coffers during this fiscal as tax," a senior Finance Ministry official said. "The Central and State government and various organisations under them are advised to compute the correct tax liability of every employee on second instalment of arrears drawn by him and immediately recover the full tax liability along with education cess thereon at the rates in force," a recent CBDT circular asked all government employers. Distribution of the remaining 60 per cent of arrears has already begun. The I-T department has received the TDS on arrears from various government departments, while the rest would be received soon, the official said. - www.economictimes.indiatimes.com

Skipping PAN will attract higher tax

New TDS-related law comes into force from Apr 1. All financial transactions without a permanent account number (PAN) will attract tax from April 1. The government today said tax at higher of the prescribed rate or 20 per cent will be deducted on all transactions liable to tax deducted at source (TDS), where PAN of the taxpayer is not available. "A new provision relating to TDS under the Income Tax Act of 1961 will become applicable with effect from April 1. The law will also apply to all non-residents in respect of payments or remittances liable to TDS," the Central Board of Direct Taxes (CBDT) said in a statement. The Income Tax Department has already made it mandatory for employers to quote PAN of their employees and parties from whom tax is deducted while filing TDS returns. The move of imposing penalty for not quoting PAN, announced in the 2009-10 Budget, is aimed at strengthening the database of the revenue department and increasing tax compliance. "There is a widespread move to make PAN ubiquitous for all financial transactions. It is basically to build up a tax database and a tax information network. The higher tax is a kind of penalty to bring more people within the ambit of tax information," said Amitabh Singh, partner, Ernst & Young. According to the new provisions, declaration by the taxpayer under section 197A for non-deduction of TDS on payments will not be valid if it is given without quoting PAN. The certificate for deduction at lower rate or no deduction will not be given by the assessing officer under section 197 in the absence of PAN. To avoid disputes regarding quoting, non-quoting of PAN or accuracy, all deductees and deductors will be required to quote PAN of deductees in all correspondences, bills, vouchers and other documents sent to each other. If a deductee fails to do so, he will have to pay 20 per cent TDS instead of 2 per cent on rental payments for plant and machinery and 10 per cent on land and building. "All deductors are advised to intimate their deductees to obtain and furnish their PAN so as to avoid TDS at a higher rate. All deductees, including non-residents having transactions in India liable to TDS, are advised to obtain PAN by March 31 and communicate the same to their deductors before tax is actually deducted on transactions after that date," the CBDT said. - www.business-standard.com

Proposal to bring DPE under MCA

An "informal proposal" has been floated for the department of public enterprises (DPE) to come under the jurisdiction of the MCA, Union company affairs minister Salman Khurshid said. The DPE currently falls under the Ministry of Heavy Industries and Public Enterprises, and is the nodal agency for central public enterprises. He said that much of the work being undertaken by the MCA for the private and public sector enabled it to better coordinate the activities of the DPE. - www.business-standard.com

Common dispute resolution scheme for GST

The Centre has suggested setting up a common dispute resolution scheme for settlement of cases in the proposed goods and services tax (GST). It is also suggesting sharing of service centres between the Centre and states, besides common registration facilities for traders. "It is proposed to prescribe a common registration form, common registration number, common return format, common service centres for acceptance of registration applications and return for Central GST and State GST," Sushil Solanki, commissioner, central excise, said at a seminar on GST regulations at the American Chamber of Commerce on Monday. A common dispute resolution mechanism is being examined by the government for GST, he said, and asked for the industry‘s views on some vexed areas in GST implementation. "There should be harmonisation of business processes between the Centre and states with regard to registration, return filing audit and anti-evasion with information sharing," he said in a presentation. The industry has been asked to suggest whether there should be a single rate or dual rate, positive list or negative list for service tax, levy of IGST on inter-state branch transfer, one registration for all units in a state or separate registration, point of incidence of tax, consignment sale and procedural simplifications. The government is deliberating whether to impose tax at the stage of raising invoice, making payment, provisioning or supply of goods and services. - www.business-standard.com

12% SERVICE TAX LIKELY TO RETURN

To exit stimulus, govt may raise excise duty too The government may take the first step towards fiscal consolidation in Budget 2010-11 by partially rolling back tax cuts given to the industry last year. The service tax rate may be restored to 12 per cent, while excise duty could be increased marginally. The finance ministry is considering a phased exit of the stimulus measures as the economy posted a robust 7.9 per cent growth in July-August quarter of 2009-10. To begin with, it wants to withdraw measures that are not likely to impact the industry significantly, such as the 2 per cent service tax cut. In the case of excise duty, the increase may not be equivalent to 6 per cent reduction that the industry got from the government as part of the stimulus measures. The Budget changes would also be used as an opportunity to rationalise indirect taxes ahead of introduction of the goods and services tax (GST). According to government sources, all options were being discussed and a final decision would be taken by Finance Minister Pranab Mukherjee in consultation with Prime Minister Manmohan Singh. Mukherjee took the political input across party lines during pre-Budget consultations with members of the Parliamentary Consultative Committee today. A senior executive of one of the leading automobile companies said the industry, too, was preparing itself for a partial rollback of excise duty cut which had been given to generate demand. Automobile and consumer durables sectors were the major beneficiaries of the duty cut. But with a spur in demand, some sections in the government felt a rollback could be attempted. Indirect tax receipts have taken a major hit due to lowering of excise duty to 8 per cent (in two phases - 4 per cent and 2 per cent) and service tax to 10 per cent. The government, meanwhile, is evaluating whether to increase excise duty for specific sectors which are showing recovery, or marginally raise the rate for all sectors to avoid disparity. It may also think of bringing more services in the tax net to improve its revenue mop-up. An increase in service tax rate without an increase in excise could leave a gap of 4 per cent between the two taxes, which are to be subsumed once GST is introduced. This could come in the way of a smooth rollout of the new tax regime. Rajeev Dimri, partner, BMR Advisors, said: "If they ( the government) increase service tax, they should also look at excise duty to avoid distortions." On the kind of impact the service tax cut could have on rising demand, Dimri said it was difficult to assess, "but the cut provides right signal to the industry by lowering costs for consumer". Satya Poddar, partner, Ernst & Young, said every little tax cut helped during slowdown, adding that the bigger stimulus was in excise duty cut. Added Dimri: "The government has to decide when is the right time to exit the stimulus. Budget is the logical way to do it. It would not make sense to touch the rates two months later. So, they shouldo it now or six months later." Poddar said if the stimulus was rolled back entirely and excise duty was to be raised to 14 per cent, the government might find it difficult to again bring it down to 5 per cent later when GST is introduced. Five per cent is the central rate suggested by the Finance Commission taskforce on GST. "The government would not do anything that is not compatible with GST," he added. One of the major concerns against the move towards rolling back the cuts, especially on excise, is rising inflation which touched a year‘s high of 7.31 per cent for December 2009. "The inflation could, however, be stoked further if the government‘s fiscal deficit is not controlled," said an expert. More spending and lower revenues are expected to widen the fiscal deficit to 6.8 per cent of GDP this fiscal, compared with 6.2 per cent in 2008-09 when the FRBM Act required the government to bring it down to 2.5 per cent. Indirect tax receipts has fallen 21 per cent to Rs 1,46,000 crore for the first eight months of the year (April-November), which is 46 per cent of the Budget estimate of Rs 2,69,477 crore for 2009-10. The fall in excise duty collections has been sharper at 17.4 per cent till November 2009 compared to service tax collections, which have fallen 6.6 per cent. With pressure mounting on launching crucial social sector schemes, the finance ministry would need to shore up revenues. The finance minister has repeatedly stressed the need to get back to the path of fiscal consolidation by aiming a fiscal deficit of 5.5 per cent in 2010-11 and 4 per cent in 2011-12. - www.business-standard.com

CBDT seeks report on Mumbai I-T refund scam

The Central Board of Direct Taxes (CBDT) has sought a detailed report from the field formation in Mumbai over the reported "income- tax refund scam" in that jurisdiction. "The Government has called for a report. We are monitoring the situation," sources in the CBDT told Business Line here today. Till Wednesday, no insider of the Income-Tax Department has been identified in any wrong doing. "It looks as if some external people were involved, but we have to wait for the complete information," official sources said. Indications are that the findings of the report, once obtained, will be placed before the Finance Minister. CBDT also maintained that the amount involved was not as high as Rs 41 crore as reported in certain sections of the media. Meanwhile, a CBI spokesman said that the matter has come to the notice of the investigation agency. However, no case has been registered as yet. "Only if a case is registered can an investigation begin. More details can be shared only if a case is registered," the spokesman added. - www.thehindubusinessline.com

I-T Department changing comp passwords

...After hacker makes off with Rs 11 crore Income tax refunds may get delayed for a fortnight, following a complete revamp of security buffers in the computer software system of tax departments across the country, after the discovery last week that someone had hacked into an account and made off with Rs 11 crore. The Central Board of Direct Taxes has suggested to income tax departments across the country to go slow on refunds for at least a fortnight, till the process is done. Meantime, it has directed a revamp of the security system in the software of the department, which include changing the passwords and sanitising the other security buffers. Over the fortnight, all officers have been asked to take stock of refund claims and check their validity. Last week, around Rs 11 crore of refunds were discovered to have been stolen, by hacking into the password of one of the assessing officers in charge of crediting the refunds into the electronic clearing system. The amount was credited to fake accounts . Sources said all these amounts were on electronically filed returns. The Mumbai income tax office has sent the case to the Central Bureau of Investigation for tracing the beneficiary. Banks have been asked to help. Refunds in 2009-10 are double the amount witnessed last year at the same time, at Rs 12,421 crore . In January 2008-09, the tax department refunded Rs 6,899 crore. Sources said refunds this year are high since these were deferred last time. The refunds comprise Rs 11,611 crore ( Rs 6,370 crore last time) in corporate tax, Rs 796 crore ( Rs 528 core) in personal tax and Rs 13.8 crore (Rs 0.90 crore ) on others, which include fringe benefit tax, security transaction tax , banking transaction tax, etc. - www.business-standard.com

Service tax refunds to exporters

In order to make exports of services from India internationally competitive, the Government of India has zero rated such exports. Consequently, the services exporting community is entitled to obtain refunds of input tax credits or utilise such credits to offset domestic output service taxes. The IT and the ITES industry is a key part of the service exporting community and was expected to be a major beneficiary of such refunds in terms of being competitive in the global marketplace. However, exporters of services had been facing serious problems by way of considerable delays in obtaining refunds of input taxes due to procedural bottlenecks. This was beginning to significantly impact their competitive position. To address these problems and to ensure the grant of expeditious refunds to service exporters, the CBEC has issued Circular No.120/01/2010-ST dated 19th January, 2010 to clarify several very important points in regard to the matter of refunds of input taxes. The circular discusses the legal position on refunds and the procedural impediments responsible for the delays in grant of refunds and the responses that the departmental officers should take to address such impediments. It lays down procedures and guidelines for processing of refund claims. On the issue of the nexus between input and output services, as to whether the input services are eligible for credits, it has been clarified that there cannot be two yardsticks, one for availing credits and another for granting refunds. The phrase ‘used in‘ mentioned in Notification No. 5/06-CE has to be harmoniously interpreted with the definition of ‘input service‘ mentioned in the CENVAT Credit Rules, 2004. Thus a broad interpretation of the definition of input services is relevant for both purposes. The Circular suggests that one way to interpret broadly is to apply the test of whether the absence of such inputs/ input services would adversely impact the quality and efficiency of the exported services. If the answer is in the affirmative, the inputs and input services should be considered as eligible for credits. This is a salutary development and likely to be of considerable help in obtaining clear and consistent interpretations on the ground on eligibility to credits on specified input services. As regards the input services in case of call centres and BPOs, the Circular illustrates the list of input services which would qualify as being eligible for credits. The list includes renting of premises, right to use software, maintenance and repair of equipment, telecommunication facilities, outdoor catering, rent a cab, and manpower recruitment agency services. Certain services which may not be regarded as eligible input services if adequate justification is not provided have also been identified. These services relate to event management, flower arrangements, mandap keepers, hydrant sprinkler systems and rest houses. The Circular lays down that the simplified procedure for refund, in caseof expor of goods, as per Notification No. 17/2009- ST will be applicable even for the grant of refunds to the service exporters who file claims under Rule 5 of the Cenvat Credit Rules, 2004. The simplified procedure has been provided for verification of refund claims and for grant of expeditious refunds within a period of thirty days. An appropriate declaration, as per prescribed format, has to be prepared and certified by an authorised person in the case of a limited company and by the proprietor / partner in case of firms where the refund claim is below Rs 5 lakh in a quarter. In case of refund claims exceeding Rs 5 lakh, the declaration must be certified by the statutory auditor who certifies the accounts of the entity under either the Companies Act 1956 or the Income Tax Act 1961, The Circular also clarifies that the accumulated credits relating to the past periods will be eligible for refunds in the subsequent quarters as well. Thus, there is no basis to argue possible disallowances of refunds for the above reason of spillovers from one quarter to another. On the invoices front, it is clarified that a liberal view should be taken with regard to incomplete input service invoices. The essential data elements, the mention of which would suffice for the requirements, are as follows: 1. The nature of input services received 2. Details of service tax paid 3. Details specified in Rule 4A of the Service Tax Rules. The CBEC has issued strict instructions to the tax auth-orities to process all claims (including pending refund claims) within 30 days of the Circular for past claims and within 30 days of filing of new claims. It has also stated that delays in sanctioning refunds beyond this period will be viewed seriously. To conclude, this clarificatory Circular is certainly very welcome and should hopefully put to rest the unending disputes regarding eligibility of input services for refunds and the significant delays in grant of refunds to the service exporting community. The introduction of the self-certification process for input invoices in support of the refund claims should make the validation methodology much simpler and easy to administer. If the Circular is followed in its true spirit, it will lead to quick and efficient disbursal of refund claims, as was always the intent in granting this benefit to service exporters.The author is leader, Indirect Tax Practice, PricewaterhouseCoopers supported by Anita Rastogi. - www.business-standard.com

To stop tax evasion finmin overhauls I-T intelligence

The finance ministry has overhauled its income tax intelligence wing in order to speed up investigation of high value cases of Rs10 lakhs and above and stop new methods of tax evasion. Commissioners of income tax (CITs) of the central information branch (CIB) will now report to the intelligence wing headquartered in the national capital.The CIB and the intelligence wing, which were till now performing support role for the conduct of search and survey operations for the investigation arm of the department, will henceforth independently probe cases of tax evasion, official sources said.The CIB is the nodal office in the department to gather all documents pertaining to transactions in relation to which permanent account number (PAN) or general index register number are given during sale and purchase of property and monetary deposits."The re-structuring of the central information branch will ensure current, constant and consolidated reporting and delivery of information on transactions, including high value financial ones which are around Rs10 lakhs or more," sources said.Under the new arrangement, commissioners (CIB) have been now designated as the directors of income tax (DITs) who will be reporting to the director general of income tax intelligence.The intelligence wing will also feed exhaustive taxpayer information to the tech-based database of the department called 360 degree profiling, sources said.360 degree profiling enables the I-T department to track all PAN card based transactions of a taxpayer, including those done by debit and credit cards.According to official I-T department guidelines, the intelligence wing "takes up intensive investigation of selected cases or class of cases and develop them for further action or specialized operation. The wing also studies and analyses emerging trends in tax evasion, new modus operandi, create an economic offence data base both in traditional and non traditional fields."The I-T department has found that evaders have tried reviving dormant accounts and have duplicated PAN cards to skip paying taxes.The wing will have enhanced liaison with other enforcement agencies such as financial intelligence unit (FIU), enforcement directorate (ED), directorate of revenue intelligence (DRI), among others.The directorate also has access to all the information received by the department pertaining to annual information return (AIR), tax deducted at source (TDS), banking cash transactions tax (BCTT) and securities transaction tax (STT). - www.livemint.com

CBDT panel finds hole in transfer pricing tax rate

The Central Board of Direct Taxes (CBDT) is in a fix over the application of one safe harbour rate to all sectors. A committee, formed last month to frame safe harbour rules as announced in the 2009-10 Budget to minimise transfer pricing disputes, has estimated that there is a huge difference in the margins of companies which would come under the ambit of safe harbour. "The rules will apply to all sectors, such as information technology (IT), business process outsourcing, IT-enabled services (ITeS), auto, garments, wrist watches and liquor, that involve international transactions between two related companies. We are discussing what should be the ideal safe harbour rate. The problem is that in the IT sector alone, margins vary between 5 per cent and 75 per cent and they change every six months," a CBDT member told Business Standard. Transfer pricing refers to cases where a company outsources work to its own subsidiary and profits are thereby transferred from one entity to the other. Taxation of captive units has become a complex area for the revenue department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit. Demands for transfer pricing rose from Rs 3,500 crore in 2007-08 to Rs 10,000 crore in 2009-10. In a safe harbour regime, transfer prices declared by a taxpayer would be accepted by revenue authorities. Experts, however, argue that a lower rate should not be a problem, as it evens out in the long run. The industry is of the view that the rate should be based on the average margins of the industry. In a presentation made to the committee, headed by CBDT member Prakash Chandra, consultancy firm Deloitte proposed a safe harbour margin of cost plus 12 per cent for the IT or ITeS industry. "Margins do not fluctuate too much. Uncertainty around markups causes concerns among multinational companies, thus affecting foreign investment. All over the world, the rate is cost plus 5, 7 or 10 per cent," said Paul Riley, leader (Asia-Pacific) of global transfer pricing, Deloitte. According to consultants, instead of a range (for example between 10 and 15 per cent) there should be one single rate for safe harbour, with the flexibility of a minor adjustment of 2.5 per cent on either side. The government, however, wants to keep the rate higher to avoid any kind of revenue loss. It is also discussing whether the rate can be based on "something else" and not on margins. A finance ministry official said the same rules and the rate would be applicable to all the sectors but the interpretation of the rules would be different to suit the needs of each sector. The government is trying to frame the rules before the next Finance Bill is introduced in 2010. Safe harbour is a significant source of revenue in some advanced countries like the US and Australia. In India, however, it does not constitute a major part of the government‘s revenues, as the tax department picks up cases with international transactions worh Rs 15 crore and above in a year. - www.business-standard.com

CONSULTATION PROCESS ON DRAFT DIRECT TAXES CODE OVER: FINANCE MINISTRY

"The government is through with the consultation process on the proposed Direct Taxes Code and the contours of the new tax structure could be finalised soon," finance secretary Ashok Chawala said on Wednesday. "The process of consultation is almost complete," Chawla said on the sidelines of a Ficci seminar. Chawla added that the architecture of the proposed tax code would be finalised by the revenue department and after policymakers give nod to it, the bill on Direct Taxes Code would be drafted by the law ministry. "Architecture will be finalised by the revenue department, and after the minister and other policy makers have given their green signal, the law ministry would draft the whole thing in the form of framework which is the direct tax code," Chawla said. The Direct Taxes Code is likely to be implemented from 2011-12. Sources said that the bill in this respect may be tabled in Parliament in the Budget session. The government has come out with the draft Direct Taxes Code that is aimed at making tax structure in the country simpler and lower the tax burden by reducing exemptions. It will replace the Income Tax Act 1961. The government has placed draft of the tax code in public domain for comments. There have been a host of issues in the draft code that have been raised by the industry and individuals at various fora. The contentious proposals are taxation on withdrawal from long term savings, doing away with tax rebates home loans, changing the criteria for imposition of minimum alternate tax and taxation of foreign companies in India.Chawla said meanwhile, the work on the budget for next fiscal will continue.Yesterday, finance minister Pranab Mukherjee started his pre-budget interactions. Industry representatives asked for continuation of stimulus packages for at least six months from the beginning of next fiscal. - www.livemint.com

CBDT panel to formulate safe harbour provisions

The Central Board of Direct Taxes (CBDT) has set up a committee to formulate rules for the safe harbour provisions-a set of rules that would enable the income tax (I-T) authorities to accept the transfer pricing returns without scrutiny. Transfer pricing refers to the price at which one arm of a company, usually a multinational corporation, transfer goods or services to another division of the same organisation in order to calculate each arm‘s profit and loss separately. Chaired by director-general of international taxation, the committee comprises of senior tax officials and representatives of trade and industry as well as Institute of Chartered Accountants of India (ICAI). The objective of the committee is to set conditions under the safe harbour rules to facilitate acceptance of a transfer pricing return without scrutiny. Foremost among the committee‘s task is to set an acceptable margin which would act as a benchmark for the industry. For example, if the safe harbour rules stipulate that the margin in a particular industry is 20%, and if the transfer price declared by a company, engaged in the that industry, is not less than the margin, the I-T authorities would accept the return without questions. However, experts feel that the margins should not be rigid. Deloitte India partner Samir Gandhi told ET: "If a company reports a margin which is less than the stipulated benchmark, the authorities should give the enterprise an opportunity to defend its case." The rules, once introduced, will lend an investment friendly image to India. It will also put an end to the requirement of collecting huge amount of data regarding transfer pricing transactions, thereby saving time and energy. Tax regimes of many developed nations such as Australia, New Zealand and Canada have incorporated safe harbour rules in their tax laws to provide clarity on the tax liability of multi-national companies operating in their countries. TP Ostwal, a senior chartered accountant said: "It is high time India looked at safe harbour provisions. Several developed nations have their own safe harbour rules." - www.economictimes.indiatimes.com

Govt to finalize GST rate, rollout date by Jan-end

The Centre is likely to finalize by the January-end the rate of a new Goods and Services Tax (GST) and the date of its implementation, a state minister said on Friday.Asim Dasgupta, the head of the panel of state finance ministers on GST and finance minister of West Bengal, said states need more time to build a consensus on the new tax that was scheduled to be introduced in April 2010."We will meet by month end and hope to finalize the date and the rate of GST," he told reporters after meeting Union finance minister Pranab Mukherjee.Mukherjee had earlier said there could be a delay in introduction of GST.The proposed GST would be an indirect tax that would replace existing state and federal levies such as excise duty, service tax, and value-added tax (VAT), and reduce the tax burden for industry and consumers.Before introducing GST, states wanted to phase out central sales tax (CST) and have sought Rs14,000 crore as compensation for cutting the rate by 1 percentage point, Dasgupta added. - www.livemint.com

Chandigarh hospitals under I-T scanner

A dozen private nursing homes and hospitals today lost their approval granted under Section 17(2) of the Income Tax Act on the basis of an assessment conducted by the Department of Income Tax, Chandigarh. According to Chief Commissioner (Chandigarh region) P K Chopra, this has been done after it came to the notice that hospitals and nursing homes reviewed were not employing adequate number of medical staff (doctors and nurses) required under the prescribed rule. The Section 17 (2) of the I-T Act provides that the employees of any private employer/company get income-tax exemption on the reimbursement of their medical treatment expenses from their employer if the hospital is approved under the said Act. This approval is given for a period of three years. The hospitals and the nursing centres at the time of the approval hire the requisite number of medical staff but get lax afterwards and do not fill the vacancies falling vacant in the subsequent period. The department for the first time made a mid-term review to catch the guilty and the reputed hospitals in town like Grewal Eye Institute, Mukat Hospital and Heart Centre, Hope Clinic and Maternity Centre, P N Urology and Surgical Hospitals Private Ltd, Omni Hospital were among those whose approval has been withdrawn. Chopra said the act did not impose any penalty or fine but it was big disgrace for the reputation of the centres who claimed to provide state-of-the-art medical facilities. - www.business-standard.com

Bonus stripping under I-T lens

After taxing investors for dividend stripping, the Income Tax (I-T) Department is gearing up to tax bonus stripping. Official sources say scrutiny of returns filed by companies, brokers and individuals active in the stock markets and in possession of shares revealed wide use of this mechanism to evade tax. According to data compiled by Business Standard Research Bureau, 314 companies have announced bonus shares since 2005-06. While assessments are on for 2008-09, in most cases the department is checking returns filed for the last four years under the scrutiny assessment, sources add. To explain how bonus stripping works, a source said: "Say, someone is in possession of 1,000 shares of company XYZ, priced at Rs 1,000 each. Following a bonus issue announced by XYZ in the ratio of 1:1, the shareholder gets 1,000 stocks more for free. By the end of the issue, the investor owns 2,000 shares, each priced at Rs 500. He now sells the initial 1,000 shares at Rs 500 each, incurring a short-term capital loss. He uses the loss to reduce gains made in other market transactions. Later, he sells the remaining 1,000 shares, at a profit since they were acquired free and reaps the benefit of tax exemption on long-term capital gains." The I-T Department recommends an amendment to Section 94(8) of the Income Tax Act to bring such proceeds within the tax ambit. While Section 94 of Indian Income Tax Act 1961 refers to tax avoidance by certain transactions in securities, Section 94(8) covers taxation of bonus shares held under the mutual fund units. Thus, bonus equity shares held by individual investors or companies are completely out of the tax net. The department now proposes to extend the coverage to securities, too, say sources. Under Section 94(8), for tax purposes, the loss arising from the sale of shares held prior to the bonus issue is treated as the cost of acquisition for the bonus shares. If the amendment is made, the profit earned by the ordinary investor or the company will be subdued, since it has to be reduced from the loss incurred by selling the earlier lot which acts as the acquisition cost. At present, the profit has no upper limit, since there is no acquisition cost for bonus shares and, over and above this, there is exemption on long-term capital gains. Taxation of dividend stripping was introduced in the Budget of 2002-03. Dividend stripping is purchasing of shares before a dividend is paid and later selling them when they go ex-dividend or, dividend payment does not apply to the shares after a certain date fixed by the company. - www.business-standard.com

Loan for TRPs

Loan for TRPs

TRPs can now take financial assistance from Bank for buying computers etc. Canara Bank has a special loan scheme for TRPs called CAN Guide -more

MP to challenge tax base for GST

Madhya Pradesh Finance Minister Raghavji has revised the tax collection estimates from GST, which is scheduled to be effective from April this year, and has put them at only Rs 14 lakh crore against the central government calculations of more than Rs 30 lakh crore. "There are flaws in calculation of tax base (GST) and it will not only put states and the Centre in trouble but commoners will be the most affected," principal secretary, commercial tax department AP Shrivastava told BS. Citing examples he said wizards who had calculated the GST base had ignored very peculiar issues. Food and drinks served in restaurants were already taxed under VAT and no additional tax base would be available in GST from private final consumption expenditure under the head ‘hotel and restaurant‘ over and above the tax base of VAT. Domestic services would not contribute to any tax base. Under ‘medical and health services‘ head, Rs 152,296 crore would be exempted in GST and so it would also not contribute to the tax base." "Public transportm being taxed, is essentially used by the low income group; it is more fuel efficient and is generally subsidised by governments. On the other hand, personal transport used by the rich will not be taxable in GS", he said adding, "The Centre has ignored the fact that "taxes on goods and passengers carried by road or on inland waterways" has assigned the taxation power relating to bus transports to states, and substantial revenue is raised through motor vehicle tax. This expenditure will not contribute to the tax base in GST." "Its taxation in GST even in future will not be justified on environmental considerations." Other points which Raghavji is likely to raise include banking charges (Rs 68,631 crore), which essentially involve interest payment by households on loans for house-building or purchase of consumer durables. It is generally not taxable in GST. His points seems carrying healthy logic as the collection of service tax from banks was hardly Rs 3,700 crore in 2007-08 indicating a tax base of Rs 30,000 crore only. Even this base is essentially from trade and industry and not from households. Therefore consumption expenditure under this head will not contribute to the tax base in GST.Other points on which others states may also agree are; the expenditure under ‘life insurance‘ head. Rs 31,517 crore is the amount of annual premium collected by insurance firms and is not taxable in GST. - www.business-standard.com

PAN made mandatory for share transfer in physical form

The Securities and Exchange Board of India (Sebi) on Thursday announced that it is mandatory to provide the permanent account number (PAN) in transposition of shares where there is a change in the order of names in which physical shares are held jointly by two or more shareholders. The market regulator also made furnishing of PAN details mandatory in cases of deletion of name of the deceased shareholder, where the shares are held by two or more shareholders. PAN details will also be required in transmission of shares to the legal heir, where deceased shareholder was the sole holder of shares. In April 2007, Sebi had made PAN mandatory for all securities market transactions. Last year, the regulator clarified that for security market transactions and off-market and private transactions - involving transfer of shares in physical form of listed companies - it would be mandatory for the transferee to furnish copy of PAN card to the company, registrar and transfer agents (RTAs) for registration of such transfers. In case of mismatch in PAN card details, or difference in maiden name and current name of the investors (in case of married women), the RTAs can collect the PAN card. However, Sebi said this would be subject to the RTAs verifying the veracity of such claims by transferee. - www.business-standard.com

NEW DIRECT TAXES CODE LIKELY FROM APRIL 2011

The Finance Minister, Mr Pranab Mukherjee, today said that he was hopeful that the new Direct Taxes Code would be implemented from April next year. "We are working on tax reforms. I am hopeful that the Direct Taxes Code will be implemented from April 2011", Mr Mukherjee said in his address at Pravasi Bharatiya Divas, an annual conference for overseas Indians. - www.thehindubusinessline.com

PRANAB ASKS I-T DEPT TO MEET TAX MOP-UP TARGET

Finance Minister Pranab Mukherjee today directed the Income Tax Department to make all efforts to achieve the revised direct tax target of Rs 4 lakh crore to contain the critical parameters of the economy, especially when there was slippage in indirect tax collections. He said this while addressing the All-India Conference on Tax Deduction at Source (TDS). Income tax collections grew 8.5 per cent in December 2009 to 2 lakh crore. "To achieve the revised target, the role of TDS Directorates and Commissionerates is crucial for widening as well deepening of the tax base as TDS is one of the most efficient non-intrusive ways of tax collection at the earliest point of a financial transaction," he said. - www.business-standard.com

Gems and jewellery sector worried over changes in Direct Taxes Code

Faced with severe margin pressures, members of the gems and jewellery industry (GJI) are now concerned about the proposed changes in the Direct Taxes Code, including provisions relating to search and seizure, tax deduction at source (TDS) and minimum alternate tax (MAT). The All India Gems and Jewellery Trade Federation (GJF), an apex body representing the trade feels that since the proposed changes are in the draft bill now under circulation, the Finance Ministry could reconsider these provisions. If the Code gets cleared in the present form to be applicable from April 1, 2011, the industry would be adversely hit. The Director of All-India Gems and Jewellery Federation, Mr Mohanlal Jain, said, "if these changes are not brought about before enacting the Direct Taxes Code Bill, 2009, the provisions relating to seizure of any stock in trade of bullion, precious and semi-precious stones or jewellery, is draconian and discriminatory against the GJF trade." The seizure of entire stock in trade when there is any difference during raids is not acceptable. The GJF has also objected to 2 per cent tax on gross assets since the industry operates on small margins with high inventory levels. There is a discrepancy in this as a company earning 2 per cent net profit will require to pay the same tax as a company earning 8 per cent net profit, Mr Jain said. The GJI in India contributes to approximately 3 per cent of the gross domestic product of the country and is a key player in the economy. Therefore, it would be in the interest of the Government to ensure that it remains healthy and the trading community are not subjected to these proposed provisions. "As a representative of the industry trade body, we are taking up the matter with the Finance Ministry and apex chambers and hope that the changes are brought about before it is finally enacted," he said. - www.thehindubusinessline.com

Notes, jottings, draft judgements not under RTI

The only silver lining for the Supreme Court in the Delhi High Court verdict holding that the Chief Justice of India‘s office comes within the purview of RTI Act was that it said notes, jottings and draft judgements would not fall within the umbrella of the transparency law. The apex court registry through Attorney General G E Vahanvati had expressed fear that bringing the CJI‘s office under the ambit of the Act would compel it to disclose judges‘ notes, jottings and draft judgements. However, the High Court dismissed the contention, saying that the apprehension was misplaced. "The apprehension of the Attorney General that unless a restrictive meaning is given to section 2(j) of the RTI Act, the notes or jottings by the judges or their draft judgements would fall within the purview of the Act is misplaced," a Bench headed by Chief Justice A P Shah said. Maintaining that the notes taken by the judges while hearing a case are meant only for their use and cannot be held to be part of a record "held" by the public authority, the Bench said "even the draft judgement signed and exchanged is not to be considered as final judgement but only tentative view liable to be changed." However, the Bench, also comprising Justices Vikramajit Sen and S Muralidhar, made it clear that "if the judge turns in notes along with the rest of his files to be maintained as a part of the record, the same may be disclosed". - www.business-standard.com

Trade unions to lodge protest with finance minister over GST

Trade union representatives are expected to meet finance minister Pranab Mukherjee on 14 January to voice their opposition to the proposed goods and services tax (GST) regime, ahead of a planned nationwide strike on 5 March to protest the recent price rise.Nine national trade unions, including the Congress party-backed Indian National Trade Union Congress (Intuc), have joined hands after nearly two decades to press the government to take action on five issues, including controlling prices of essential commodities, creation of a national social security fund to protect workers against job losses and strict measures against violations of labour laws. They are also opposing disinvestment of profit-making Central public sector enterprises.Trade unions cutting across political lines who have come together under a common platform include Hind Mazdoor Sabha, Bharatiya Mazdoor Sangh and the left-wing All Indian Trade Union Congress (Aituc) and Centre of Indian Trade Union.The Union government‘s planned tax-code reform is the latest to come under attack from the unions, which they have described as regressive. GST is India‘s most ambitious indirect tax reform that seeks to stitch together a common market. The labour groups are also opposing the go

Procedure for appointment as e-Return Intermediary

1 Appointment:-These e-Return Intermediaries shall be appointed by Income Tax Department..

2. Requirements:-.
      i. The TRP must have Permanent Account Number & Digital Signature Certificate(Class II or Class III).
      ii. The TRP should have appropriate hardware & software resources together with internet connection..
      iii. The TRP should have necessary archival, retrieval & security procedures..
      iv. The TRP must not have been convicted for any professional misconduct, fraud, embezzlement or any criminal offence..

3. Registration Fees:-The amount of registration fee is Rs. 4000 (plus Service Tax), which is non refundable..

4. Registration Procedure:-The TRP is required to register themselves online with NSDL at www.tin-nsdl.com. Physical application shall not be entertained..

5. Responsibility:-The TRP shall .
      i. Ensure that the assessee is eligible under this scheme..
      ii. Ensure that the assessee has quoted correct & valid Permanent Account Number & Tax deduction account number.
      iii. Ensure that the particulars of Advance tax, Self assessment tax, Tax deducted at source are in accordance with documents attached..
      iv. Ensure that the paper return has been properly filed & duly verified by the assessee..
      v. Retain the electronic data of the assessee for a period of 1 year from the end of relevant assessment year..
      vi. Maintain the confidentiality of the information of the assessee..

HC UPHOLDS SALES TAX ON

Levy of sales tax on a higher percentage on ‘superior kerosene oil‘ (SKO) (also called white kerosene oil) and also levy of resale tax and surcharge on it by Tamil Nadu Government have been upheld by the Madras High Court. The attack by dealers that levy of different rates for same commodity was discriminatory was turned down by the Court which ruled that such allegation of discrimination would "amount to questioning legislative policy of the State to tax a particular commodity". Dismissing a batch of writ petitions by Southern Petro Oils (P) Ltd., Chennai, and others challenging Government‘s decision to levy sales tax on different rates on ‘superior‘ kerosene and ordinary kerosene, Mr Justice K. Chandru said that when the legislature had consciously made a distinction between the two products, same could not be attacked on ground that they were same products and should receive same percentage of levy of tax. The Government had come out with a stand that a separate levy was made to prevent misuse or black-marketing of public distribution commodities. Under Section 59(1) of TN General Sales Tax Act, the Government issued a notification amending Entry in Eleventh Schedule with effect from March 21, 2003. It was notified that kerosene was taxable at 4 per cent and the new entry ‘white kerosene‘ (SKO) at 25 per cent. The petitioners contended bifurcation of kerosene into kerosene and SKO was not valid, since goods known as ‘white kerosene‘ or SKO did not have any separate identity. They were also kerosene for all practical purposes. The levy of tax at 4 per cent on kerosene and 25 per cent on SKO was arbitrary and unconstitutional. On levy of surcharge, petitioners said that under Section 17(1) of TNGST Act, Government granted an exemption in respect of surcharge payable under Section 3-I on sale of kerosene and some other products as specified in Eleventh Schedule. The said notification was to come into effect from July 1, 2002. Power under this section was independent of power under Section 59(1). Insofar as exemption notification for surcharge and resale tax was not amended, they were entitled to exemption in respect of any levy found in the Schedule, petitioners contended. The Government said that it had power by delegated legislation to introduce an item into Schedule by virtue of Section 59(1) and even that became a part of the statute. The Judge ruled that so long as the commodity was an essential commodity and private marketing system was introduced by Parliament to safeguard interest of kerosene supply under PDS, it could not be said State legislature lacked power in taxing kerosene different from that of SKO. The attack of discrimination thus must fall to ground. On contention that exemption notification under Sec 17(1) would continue to operate notwithstanding amendment to entry in Schedule because same term continued to be in use in amendment notification could not be accepted. Also what applied to surcharge was also apcable to resale ax. The writ petitions were dismissed. Petitioners were granted liberty to challenge the order before appropriate statutory forums under the TNGST Act. - www.thehindubusinessline.com
Income tax limit for individuals should be 20 pc
The maximum tax limit of income tax for individuals should be 20 per cent and for businesses it should not exceed 25 per cent
Tax sops for foreign oil E&P advisors: AAR Income of foreign companies providing technical services and data to oil exploration and production companies in India will be taxed at a concessional rate, the Authority for Advance Rulings (AAR) on income tax has said in a recent decision. The ruling will be a big help to oil prospecting companies in India as they step up exploration activities, allowing them to avail of technical services and data more easily. The last round of auction of hydrocarbon exploration blocks under the new exploration licensing policy (Nelp-VIII ) in October received 76 bids for 36 of the 70 blocks on offer. These blocks will be available for exploration early next year and the winning bidders will need both technical services and data to begin prospecting. The AAR ruling relates to UAE-based Seabird Exploration FZ LLC, a geophysical company that conducts seismic surveys and provides offshore seismic data to global oil companies
Draft rules on regulating goods transport agents with law min The rules being drafted to implement the Carriage by Road Act, 2007, have a provision to permanently cancel the registration of a goods transport agent or a common carrier if there are three violations in a year or five in two years.
TDS on agents‘ share may make air travel costlier Air travel agents will have to forego a part of the commission they receive from airlines on tickets sold by them, as the tax department has decided that such payments will be subject to tax deduction at source, or TDS. This could increase cost of air travel, as agents will pass on this burden to the flyer.
Advance tax payments show growth hastening Advance taxes paid by the top 1,000 companies for the third quarter (16 September-15 December) of the current fiscal increased 42.7% over the corresponding period of the previous year to Rs41,267 crore, signalling a quickening pace of economic activity.
Services received from abroad prior to April 18, 2006 not taxable: Apex court The Supreme Court has upheld a Bombay High Court ruling saying that the Government cannot levy service tax on services provided outside the country. The order pertains to service tax for the period from March 1, 2002 to April 17, 2006. Acting on an appeal filed by the Centre, a Division Bench comprising Mr Justice S. H. Kapadia and Mr Justice Aftab Alam, said, "The special leave petition is dismissed". It found no merit in the Centre‘s contention.

PROMISE OF A CODE AND A TAX

As 2009 comes to a close, India Inc. and individual taxpayers alike would want to reflect on the overall thrust and direction and implementation of tax policy initiatives in India in this decade, begins Sudhir Kapadia, Tax Partner with Ernst & Young, India. "Tax policy, the lost decade?" he wonders, though, in the course of a recent email interaction with Business Line. xcerpts from a brief interview, in which Kapadia speaks about direct and indirect taxes.
ON DIRECT TAXES.
As is well-known the current income-tax law is a code written in 1961 to replace the earlier code of 1922. With the efflux of time and increasing sophistication of business transactions, the current Act has witnessed thousands of amendments over a period of time and there is a wide consensus about the lack of simplicity and clarity on many contentious tax issues in India today. It was about a decade ago that Kelkar Committee recommended benign tax rates with a simple code without the clutter of various tax exemptions and deductions. For various reasons, the Kelkar Committee has never been implemented in its fullest form and shape. For example, we still have surcharges of various ilk on the basic corporate tax rate of 30 per cent despite the fact that the ostensible reason for imposition of these surcharges seem to have outlived their relevance. Whilst an attempt has been made to rationalise and provide for "sunset" timelines for expiry of some existing tax holidays, our tax policy on tax holidays appears to be ambivalent. For instance, the tax policy on SEZ (special economic zone) has been singularly uncertain and at divergence from the SEZ policy. Of course, the highlight of the decade will surely be the introduction of the Direct Taxes Code (DTC) which is a bold attempt to simplify the tax law and offer greater certainty to the taxpayers. Much has been said and written on the DTC and the Government has indicated its readiness to revisit several critical areas of the DTC in view of feedback received from industry and professionals. With the benefit of hindsight perhaps the stakeholders could have been taken into confidence and their views solicited much before the draft code was written and presented to the public. This would have enabled a healthy debate around the direction of tax policy and new concepts sought to be introduced like the gross assets tax, for example, before the actual drafting of the law.
ON INDIRECT TAXES.
The fact that the Indian economy has been plagued with multiple indirect taxes leading to inefficiency, cascading impact of taxation and higher cost to consumer is a well-documented feature. Whilst the introduction of the Value Added Tax (VAT) to replace the State-level sales tax was a laudable initiative, the fact that separate laws govern sale of goods and sale of services (through the Services Tax Act) and the obvious loss to input credits whether goods are used as inputs in the service sector and vice-versa means that inefficiencs continue to prevail in the area of cascading indirect taxes. In the light of this, the introduction of the Goods and Services Tax (GST) concept is perhaps the most significant tax reform introduced in independent India. To the extent the GST concept aims to converge and harmonise all indirect taxes under one group and, more importantly, ensure availability of input tax credits against output tax credits in respect of inputs in the value chain, it is a welcome departure from the current system of multiple indirect taxes being levied on value chain of the business. The challenge which policymakers face under the GST concept is of course to refrain from incorporating too many exemption categories of goods or services as this would result in loss of input tax credits where a business is engaged in providing an exempt good or service. For an eternal optimist, the twin implementation of a sensible DTC and GST in India should usher in much-awaited simplicity and certainty for the hapless taxpayer in India. If this promise does not get fulfilled, if nothing else, we will continue to have gainful employment of tax administrators and tax professionals alike. - www.thehindubusinessline.com

NEW GOODS AND SERVICES TAX: INDIA SHIFTING TO A SORT OF CONSUMPTION TAX

India is shifting from tax on production to a sort of consumption tax and consolidating all indirect taxes under the banner of the new goods and services tax (GST). The 13th Finance Commission in its report submitted to President Pratibha Patil here on Wednesday has also recommended fiscal prudence by the government. Finance Minister Pranab Mukherjee was quick to announce to go by the report, declaring that he would use it in the upcoming union budget in February for effecting fiscal discipline. The report recommends fiscal prudence as its chairman Vijay Kelkar told reporters that the commission was asked to suggest a new path for fiscal consolidation and as such, "We have recommended a new fiscal path for the next five years (2010-15)." Fiscal deficit, a reflection of government borrowings, is estimated to touch 6.8 percent in 2009-10, up from 6.2 percent in the previous fiscal, mainly on account of the stimulus measures. The report deals with the issues of sharing tax revenue between centre and states, distribution of funds among states and support to local bodies. The Finance Commission report assumes significance in view of the ongoing reforms in indirect and direct taxes, which will have a bearing on the tax collections. It fully endorses the GST as visionary, comprehensive and truly ‘flawless‘. The commission wants five GST exemptions and suggests a single tax rate of 7 percent by states and 5 percent by the centre. It recommends inclusion of all goods and services in the GST, including real property, banking services, petroleum, electricity, alcohol and tobacco. Once GST comes into force, all other indirect taxes will go, including stamp duties, entry tax not in lieu of octroi, purchase tax, and the central sales tax (CST). Tax experts say the new tax regime will have tremendous simplification and rationalisation of tax structure and could prove to be the tipping point for converting the Indian tax regime from one of the worst to one of the best in the world. One of the interesting features of the report is the creation of a council of state finance ministers, which will be responsible for any modifications to the design of GST and for providing compensation to individual states for any loss in revenues due to GST. This body is an innovative compromise between the fiscal sovereignty of the states and the centre and the need for harmonisation and cooperation. While the paper has clearly defined a vision for the new tax regime, there are many hurdles that remain. Even though the model outlined by the Finance Commission is a win-win for both the centre and the states, the states may be reluctant to take the giant leap that it entails. The states have been skeptical of the adequacy of the 7 percent to replace their current revenues. The Finance Commission has spent endless hours to confirm the validity and robustness of this calculation. This rate is indeed adequate to replace the current state taxes and provide some surplus from improvedliance and larger GDP, which has not been factored by the Finance Commission while calculating the rate. The second concern of the states will be the inclusion of sectors such as real estate and alcohol, which are the exclusive reserve of the states under the current constitutional division of taxation powers. Modern GST makes no exceptions for such sectors. Their inclusion in GST is essential to eliminate cascading and to ensure proper reporting and compliance by all sectors of the economy. There are also certain technical features in the design of GST, which may prove to be challenging. Most notable among these is the taxation of banking services. No country in the world has been able to design a model for inclusion of financial services within a VAT/GST framework. India, if successful, will chart a new course, which could well become the model, which the rest of the world could emulate. - www.dailytimes.com

INTRODUCTION OF UTN SHELVED

The government has decided to shelve the introduction of the Unique Transaction Number (UTN) which tax payers need to quote along with Permanent Account Number (PAN) when tax is deducted/collected at source. The scheme was to have come into force from the New Year. However, the finance ministry has not ruled out the possibility of introducing a new identity number like UTN from the next fiscal, in addition to the PAN to ensure prompt verification and granting of tax credits to tax payers. "The introduction of UTN, which was scheduled to be implemented from January 2010, has been shelved in all probability . The process of filing tax returns remains the same as earlier," a finance ministry official said. A similar arrangement of having a new identity number is under contemplation but it would only happen from the next fiscal, the official said. The government had earlier said the system of allotting UTN is expected to become operational by January 1, 2010. The move to introduce UTN had invited concerns from tax payers as it would have brought in a slew of formalities for the tax payers, through their respective collectors and deductors, to avail the new number and file their returns on time. The decision to shelve the UTN has been taken keeping in mind the approaching end of the fiscal year. Moreover , the exercise to have a new identity number like PAN is huge and it would have brought a lot of complications for tax payers, the finance ministry official said. The Central Board of Direct Taxes (CBDT) had deferred UTN‘s introduction to June 30 this year saying, "taxpayers filing their income tax returns for assessment year 2009-10 or any other earlier assessment year, may continue to file their returns without mentioning the Unique Transaction Number (UTN)." The CBDT in a circular earlier said the new number (UTN) is mandatory for filing tax returns due to certain lacunae like individuals having more than one PAN. The income-tax department was also in touch with the National Securities Depository (NSDL) regarding future steps to be taken for "putting in place" a new system for UTN. - www.economictimes.indiatimes.com

MCA ASKS SEBI TO PROVIDE DETAILS OF RIL PROBE

The Ministry of Corporate Affairs (MCA) has asked the Securities and Exchange Board of India (Sebi) for details of its investigation pertaining to Reliance Industries Ltd (RIL). The market regulator had acted on a complaint that RIL had allegedly routed funds to dummy companies to buy its own shares nine years ago. The ministry‘s response came after Sebi, in a letter on December 1, wanted MCA to take appropriate action on the alleged routing of money from RIL and erstwhile Reliance Petroleum Ltd (RPL) to 34 private companies to enable them to subscribe to RIL‘s equity shares. Sebi‘s recommendation was based on the advice given by Justice B N Srikrishna on the matter. Minister for Corporate Affairs Salman Khurshid said the government had taken the Sebi letter seriously. "Sebi‘s letter has to be taken seriously… The government does not want to anticipate anything. If Sebi has taken nine years, let us take at least nine days," the minister told PTI. MCA will go through the documentary evidence provided by Sebi before taking a decision. Officials did not rule out the possibility of handing over the matter to the Registrar of Companies (RoC). Sebi was probing a complaint by S Gurumurthy of Swadeshi Jagran Manch, alleging that RIL and its investors lost at least Rs 2,700 crore in issuance of shares at a much lower price than what was allocated to the state-owned UTI. After taking the opinion of retired Supreme Court Justice B N Srikrishna on its own investigation report, Sebi asked the ministry to take "appropriate action" against RIL for sale of 120 million shares, representing over 11 per cent of total equity, through this route. "If anybody tries to do a post-mortem by digging old graves, then we will rather focus on the work forward than engage in post-mortem," Khurshid said, adding that RIL had been demerged since then. The Reliance empire was divided in 2005 as part of a settlement between the warring Ambani brothers Mukesh and Anil and the case relates to the time when father Dhirubhai was at the helm of affairs. "I don‘t want to anticipate or say something... This is not a policy decision. There are officials to look after these things," the minister said, when asked about allegations that the sale of 120 million shares was done for the benefit of promoters. - www.business-standard.com

GOVT TO MATCH NETAS

The finance ministry has quietly initiated the process of opening up the income tax files of politicians belonging to all parties and tallying their income statements with the affidavits filed by them with the Election Commission during the 2009 parliamentary polls. Verification of the assets declared by the Lok Sabha candidates, many of whom have now become MPs and even ministers, will help the department to assess if they had paid appropriate taxes as declared in their statements with the two different authorities. The finance ministry initiated the exercise after it found that many of the candidates had made astounding declarations in their affidavits to the EC while initial scrutiny revealed that some of them had paid paltry or no taxes. However, As many as 50 per cent of the candidates in the 2009 LS polls had not furnished their Permanent Account Number (PAN), making it difficult for the department to ascertain the actual income of these people. Despite this problem, the I-T department hopes to add revenue from many of these candidates whose wealth has seen astronomical growth in the past few years. Not having a PAN or not disclosing it for the purpose of evading tax could invite both scrutiny as well as penalty and prosecution in cases were evasion is proved. Although the penalty for not having PAN is just Rs 10,000, for tax evasion it could be as stiff as between 100-300 per cent of the tax evaded. The department will be scrutinizing of the I-T returns of all Lok Sabha candidates irrespective of whether they ended up winning or not. A letter from the Central Board of Direct Taxes (CBDT) has been circulated to all those MPs whose records are not available with the I-T department or whose PAN has not matched with the department‘s records. Sources said the I-T department has asked the candidates to submit their last two years‘ income tax returns as well as those of their dependents whose names were mentioned in affidavits filed with the EC. The details sought pertain to assessment years 2006-07 and 2007-08. The letter said: "A verification exercise is being carried out by the I-T department, ministry of finance, in respect of affidavits filled by you at the time of filing nomination for the general elections 2009." The department has sought to know with which ward or circle the candidates have been filing their returns and if their dependents, as mentioned in their affidavit, have also been filing their income and wealth tax returns. For fear of being disqualified if statements made in the affidavits were to be found untrue when elected, candidates had made some astounding declarations. One candidate declared assets worth more than Rs 600 crore, while those having assets between Rs 100 crore and Rs 200 crore were found in dozens during the 2009 polls. Sources said even those who have shown legitimate wealth would have to pay wealth tax on the current market value of their property at the rate of one per cent of the value of the assets, arring those which are in the exempted category under the Wealth Tax Act. - www.economictimes.indiatimes.com

OVER 38 LAKH CLAIMANTS SOUGHT INCOME TAX REFUND

There were 38.17 lakh claimants for income tax refund as on April 1 this year, a minister said Friday. The central government paid Rs.1,983 crore as income tax refund during financial year 2008-09, while it was Rs.1,308 crore in 2007-08 and Rs.1,922 crore in 2006-07, Minister of State for Finance S.S. Palanimanickam told the Lok Sabha. He said the returns received in financial year 2008-09 could be processed up to March 31 next year. Palanimanickam said political parties like the Congress, the Bharatiya Janata Party (BJP), the Nationalist Congress Party (NCP), the Samajwadi Party (SP), the Rashtriya Janata Dal (RJD), the CPI (M-L), the Rashtriya Lok Dal (RLD) and 19 others have not filed returns of their income for the year 2008-09. - www.calcutta news.net

INVESTORS WITHDRAW FROM BANK OF INDIA AFTER LOWER ADVANCE TAX PAYMENT

Bank of India lost 1.68% to Rs 375.65 at 11:07 IST on BSE, on reports the state-run bank has paid lower advance tax of Rs 102 crore in the third quarter of fiscal year ended March 2010 as compared with Rs 370 crore in the same period last year. Meanwhile, the BSE Sensex was up 24.02 points, or 0.14%, to 17,121.57 On BSE, 40,314 shares were traded in the counter as against an average daily volume of 3.63 lakh shares in the past one quarter. The stock hit a high of Rs 380 and a low of Rs 374.15 so far during the day. The stock had hit a 52-week high of Rs 474.70 on 17 October 2009 and a 52-week low of Rs 179.60 on 9 March 2009. The large-cap banking stock outperformed the market over the past one month till 14 December 2009, rising 4.09% as compared to the Sensex‘s 1.48% rise. However it had underperformed the market in the past one quarter, rising 5.36% as compared to the Sensex‘s return of 5.45%. The bank‘s equity capital is Rs 525.17 crore. Face value per share is Rs 10. The current price of Rs 375.65 discounts the bank‘s Q2 September 2009 annualized EPS of Rs 24.59, by a PE multiple of 15.27 Advance tax is paid in four installments in June, September, December and March, and is based on taxpayers‘ projected income, giving an indication of industry‘s performance in coming months. Meanwhile, Bank of India raised tier- I capital through issue of BOI- Perpetual Bonds - Series - V of Rs 325 crore on 9 December 2009. The coupon rate is 9 % per annum with a Call Option after 10 years. The announcement was made after market hours on 14 December 2009. Bank of India‘s net profit plunged 57.61% to Rs 323.34 crore on 11.98% rise in total income to Rs 5164.96 crore in Q2 September 2009 over Q2 September 2008. The state-run bank is engaged in banking services. The services of the group include acceptance of deposits, provision of loans, financing rehabilitation, treasury and investment management services to consumers and industries. The Government of India holds 64.47% stake in the bank (as on 30 September 2009). - www. calcutta news.net

GOVT WIDENS TAX NET FOR PERKS, APPLICABLE RIGHT AWAY FOR ENTIRE YEAR

Your tax burden has just gone up, with the government today issuing the new guidelines for taxation of perquisities. In fact, it could be a double whammy, as you have to pay the additional tax liability for the whole of this financial year over the next three months. Employees who were not paying tax on a host of perks such as company-provided cars, employee stock options, interest-free loans and salaries of gardeners and watchmen for the past five years now face an additional liability. For instance, for an employee provided with a chauffeur-driven Honda Accord for official as well as personal use, the additional taxable income would be Rs 3,300 a month. So, the tax liability may be just about Rs 990 a month. But, if the car is only for personal use, then the tax liability would go up. Assuming Rs 7,000 a month is spent on fuel and maintenance and another Rs 5,000 is paid to the driver, the entire Rs 12,000 would be added to the employee‘s income and taxed at the applicable rate. So, for employees in the top tax bracket of 30 per cent, the liability could be around Rs 44,000 annually or a little above Rs 3,600 a month. "This (differentiation) is primarily because it is difficult to ascertain whether the vehicle is being used for official purpose or for personal purpose," said Deloitte Tax Partner, Homi Mistry. With the Fringe Benefit Tax regime, introduced by P Chidambaram during the UPA government‘s last term, coming to an end in March 2009, employees getting stock options could be in for some higher burden. During the days of FBT, the burden had been transferred to employers. But now, the liability is once again on the employees. According to the guidelines issued by the revenue department today, the difference between the fair market value on the date of exercising the option and the grant price would be added to income. So, if the grant price is Rs 100 and the fair market value on the date of exercise price is Rs 500, Rs 400 would be added to the employee‘s income. In the case of food vouchers, despite the rise in prices, the earlier tax-free limit of Rs 50 per meal remains unchanged. In case of company-paid vacations, the entire expenses would be added to an employee‘s income and taxed at the applicable rate. Ditto for gifts worth over Rs 5,000. "Employees working for firms which did not recover FBT will see a significant dip in their take-home salaries," said Ernst & Young Tax Partner Sanjay Grover. With most employers not deducting tax on perquisites so far, your pay cheque for the next three months could be lighter. "This will lead to a huge deduction at source and may leave very little for the employees to take home. As a result, the employer might have to pay advances or loans to the employees, which again carries a notional interest on it," added Grover. Industry sources said the rate of interest on such loans to employees is 11.5 per cent. Some tax advisors said many employees have already seen deductions. "We had advised ou clients to deduct tax based on norms that existed before FBT was introduced. So, the impact will not be much," said KPMG Executive Director Vikas Vasal. He, however, added that in case of employees who had left the organisation, the employer would have to bear the burden. Next year onwards, many companies are also expected to restructure the compensation package. "Now, compensation may need to be redesigned to incorporate the new exemptions or concessions that are being provided under the new prerequisites valuation rule," said Grover. - www.business-standard.com

DIRECT TAX COLLECTION INCREASES 8.1% TO RS 2.27 LAKH CRORE

The recovery of the Indian economy, as was broadly expected, has worked well for the advance tax figures for the third installment that was payable by December 15. The all India direct tax collection, which includes corporate and personal taxes, increased 8.1% to Rs 2.27 lakh crore, according to figures that are currently with the income-tax (I-T) department. This relates to collections between April and December this year and compares to the same period for the the previous year. Advance taxes are usually paid in four installments-on June 15, September 15, December 15 and March 15. With only one installment remaining to be paid, officials are now hoping that a stronger economy can boost the advance tax collection by the end of the fiscal. According to senior I-T officials, the rise in the tax collection could go up to 10 % by the third week of December. This is when the tax mopup operation for the third quarter is expected to be completed. An 8% increase in tax mopup is considered significant in view of the fact that the growth in tax collection this fiscal has been limping at a rate of 2-3%. This was until the collection process began for the third installment of the advance tax collection. The marked jump in the rate of increase was attributed to healthier GDP figures recorded for the second quarter apart from companies reporting better financial numbers. Corporate tax collection has gone up by 11.3% to 1.48 lakh crore. This is on the back of zero-tax payable by the state-owned oil companies like IOC, HPCL and BPCL. This is on account of the non-issue of oil bonds by the government. PSU oil companies generally account for about Rs 2,500 crore. The tax collection from foreign banks operating in India has also come down significantly, affecting the rate of growth in tax collection. The big relief for taxmen came when the domestic banking industry, which includes the largest public sector bank State Bank of India, reporting higher tax payments. Other large companies such as Reliance Industries, Hindustan Unilever, Tata Steel too have paid higher advance tax this quarter. Overall, companies in the auto industry and pharmaceuticals have paid higher advance tax. What could be a dampener is the possible impact of the drought in many parts of the country, which could impact the figures for the March 15 advance tax collection. The government‘s projection for the year‘s tax collection is Rs 4 lakh crore. "This is a tall order that can be met only if the recovery process gains pace in the remaining period of the fiscal, said a senior I-T official." - www.economictimes.indiatimes.com

GOODS AND SERVICE TAX DELAYED, LIKELY BY 2011 ONLY

It‘s official: The goods and service tax (GST) regime, India‘s biggest-ever tax reforms attempt, scheduled to roll out on April 1, 2010, will miss the deadline by a wide margin. After a meeting in the capital on Wednesday, chairman of the empowered committee of state finance ministers on GST, Asim Dasgupta, told the media that the draft amendment for the new tax regime would not be introduced in the current winter session of Parliament. It may be difficult to introduce the goods and services tax amendment in this winter session due to certain difficulties, said West Bengal finance minister Daspupta. If the amendment is introduced in the next Parliament session (Budget), GST cannot be implemented from April 1 as framing of the new legislation is a lengthy process, an empowered committee representative pointed out. In fact, members of the committee have indicated that GST would not be implemented before the year 2011. In the DNA Money edition dated November 11, it was reported that a one-year delay from the scheduled date of GST rollout was likely. On Tuesday, the task force of the 13th Finance Commission released a report, recommending to defer the GST implementation by six months. The task force wants GST implementation only by October 1, 2010. "Given the fact that the discussion paper on GST has not yet been released for public debate, it is unlikely that the Centre and the States would be able to complete all legislative and administrative processes before April 1, 2010," the 13th Finance Commission report said. It added, "it would be appropriate for the Council (empowered committee) to postpone the implementation by six months to October 1, 2010." Stressing on the need for strong political consensus and significant role of the finance minister, the Commission‘s task force report has pointed out that "the benefit to the poor from the implementation of GST will flow from two sources: first through increase in the income levels and second through reduction in prices of goods consumed by them." The proposed switchover to the ‘flawless‘ GST should, therefore, be viewed as pro-poor and not regressive, it has said. "Hence, the switchover will improve the vertical equity of the indirect tax system." The 13th Finance Commission task force has recommended a single, 12 per cent rate, on all items.While states would get 7%, the remaining 5% would go to the Centre, according to the task force. The discussion paper prepared by the Empowered Committee of state finance ministers had however suggested four rates under GST. The Centre and states are still in consultation, and they are far from reaching a consensus on how to implement the ambitious GST scheme. Besides the rates to be fixed for GST, the quantum of compensation to be paid to the states during implementation of the system is a thorny issue that needs to be resolved. GST is being referred to as a comprehensive indirect tax reform in the country, just like value-added tax (VAT) was an imprvement over the earlier system of central excise duty at the national level and the sales tax system at the state level. Former finance minister P Chidambaram had announced April 1, 2010, as the rollout date for GST across the country in his budget speech of 2007-08. Recently, finance minister Pranab Mukherjee had said, "we should look at a full-fledged rollout of GST. Let it take as much time as required." The empowered group of state finance ministers is scheduled to meet again on January 7 and 8 to discuss the GST issue. The FM will then finalise the draft constitutional amendment in consultation with the committee. - www.dna.com

INDIA INC: TAX COLLECTIONS PAINT A ROSY PICTURE

India Inc seems to have fared well in Q3 FY 10 if advance tax amounts paid by them are any indication with several automobile, power, cement and banking majors shelling out more as compared to their year-ago pay-outs. Major Indian automobile companies like Tata Motors, Bajaj Auto and Mahindra & Mahindra seem to have put up a robust performance in Q3 FY 10, paying advance tax of Rs 100 crore (Rs 1 billion), Rs 320 crore (Rs 3.2 billion) and Rs 195 crore (Rs 1.95 billion), respectively. While Tata Motors didn‘t pay any advance tax last year same period, its overall payment till the third quarter of this fiscal stands at Rs 260 crore (Rs 2.6 billion) as against Rs 90 crore (Rs 900 million) last year. M&M paid just Rs 5 crore (Rs 50 million) in Q3 FY 09 while the overall payment till Q3 this year stands at Rs 325 crore (Rs 3.25 billion) as against Rs 35 crore (Rs 350 million) last year. Bajaj Auto paid Rs 100 crore (Rs 1 billion) in Q3 last fiscal while overall this year it has shelled out Rs 540 crore (Rs 5.4 billion) as against Rs 240 crore (Rs 2.4 billion) last year. Tata group company, Tata Power, paid Rs 81 crore (Rs 810 million) in Q3 this fiscal as against Rs 29 crore (Rs 290 million) in the year-ago period while overall, its payment stands at Rs 177 crore (Rs 1.77 billion) as against just Rs 57 crore (Rs 570 million) last year. Reliance Power has paid three times more this quarter at Rs 60 crore (Rs 600 million) as against Rs 20 crore (Rs 200 million) in the year-ago period. Its overall advance tax payment in this fiscal so far stands at Rs 75 crore (Rs 750 million) as against Rs 35 crore (Rs 350 million) last year. Cement manufacturers reveal a mixed picture with some paying more in the quarter but with their overall payment falling and vice-versa. ACC has paid an advance tax of Rs 110 crore (Rs 1.10 billion) this time as against Rs 125 crore (Rs 1.25 billion) in Q3 last fiscal. However, its overall payment has increased to Rs 320 crore (Rs 3.2 billion) as against Rs 220 crore (Rs 2.2 billion) last year same period. Ambuja Cement has paid Rs 150 crore (Rs 1.5 billion) this quarter as against Rs 140 crore (Rs 1.4 billion) in the year-ago period but its overall pay-out stands reduced at Rs 370 crore (Rs 3.7 billion) from Rs 415 crore (Rs 4.15 billion) in the year-ago period. Two other major cement companies, Ultratech Cement and Lafarge, have recorded a growth in both Q3 as well as in their overall payments. Ultratech has paid Rs 95 crore (Rs 950 million) as against Rs 65 crore (Rs 650 million) in Q3 FY 09 and overall a total of Rs 165 crore (Rs 1.65 billion) as against Rs 140 crore (Rs 1.4 billion) in the same period last year. Lafarge has paid Rs 65 crore (Rs 650 million) in this quarter as against Rs 60 crore (Rs 600 million) in the last year while its overall advance tax payment company stands at Rs 110 crore (Rs 1.10 billion) as against Rs 83 crore (Rs 830 million) in the year-ago period. Infrastructure major L&T‘s advance tax paymen during this quarter stands reduced at Rs 270 crore (Rs 2.7 billion) as compared to last year‘s Rs 310 crore (Rs 3.1 billion) while overall, its pay-out is up by Rs 30 crore (Rs 300 million) at Rs 590 crore (Rs 5.9 billion) as against Rs 560 crore (Rs 5.6 billion) in the corresponding period last year. - www.rediff.com

PERKS TO BURN BIGGER HOLE AS PRE-FBT NORMS RETURN

Salaried taxpayers enjoying perks, such as chauffeur-driven cars, will see their tax outgo jumping in the next three months as the government changed the way these perks are valued and lumps their whole year collection to three months. The Central Board of Direct Taxes on Friday notified new rules for valuation of perquisites provided by employers to employees. It comes with retrospective effect from April 1, 2009, after the Fringe Benefit Tax was abolished and perks became taxable in the hands of the employee. In the new regime, the value assigned to the perk enjoyed by the taxpayer will now be added to his total income and be taxed accordingly, depending the tax bracket he is in. In fact, some employees could even go up to a higher tax bracket because of this addition of perks to the income. This entire tax liability is to be recovered in the remaining three months of the year if employers have not deducted any tax so far. "Tax liability for the full year needs to be recovered by March 31, 2010 from the taxpayer, which could result economic hardship of employee, in case no tax has been withheld in absence of the perquisite valuation rules," said Vikas Vasal, partner, KPMG. Perquisites provided by employees such as cars, rent-free accommodation, services of personal attendants, confessional education, confessional journeys, credit card, interest-free loans, gift vouchers, hotel stay exceeding 15 days and medical facilities, employee stock option plan have become taxable in the hands of employees now. The government has retained the old perquisite valuation rules that were in place prior to the FBT regime, only marginally tinkering with in the case of cars and food vouchers where value of meal has been fixed at Rs 50 apiece. Small cars below 1.6 litres will now have a value of Rs 1,800 per month while cars with engine capacity above 1.6 litre cubic capacity will have a value of Rs 2,400 per month, if expenses on maintenance and running are reimbursed by the employer.This essentially means that a salaried taxpayer will have to add Rs 21,600 to his annual income if he has a company provided small car and Rs 28,800 if it is a big car. However, if the employee bears the expenses for running or maintenance of the car, then the value assigned to small car will be Rs 600 per month or Rs 7,200 per annum or Rs 900 per month or Rs 10,800 per annum for a big car. Another Rs 900 per month or Rs 10,800 per annum will be further added if the employee has also been provided with a chauffeur. The valuation has increased compared to previous perquisite taxation rules. However, no value will be assigned if the expenses incurred on a car is used "wholly and exclusively" for official purposes. "Coming so late in the year, it is a relief that there are no major surprises,‘‘ said Amitabh Singh, partner, Ernst & Young. ``The increase in valuation of auto perquisites is in line with general increase in fuel prices and should not pinch too much." Government employee who are on deputation to public sector undertakings may have to bear the additional tax liability if they have a rent-free accommodation from the company since it would not be treated on par with that of what government provides. The Finance Act 2009-10 also made employee stock options and employers‘ contribution to the superannuation fund taxable, if it exceeds Rs 1 lakh per annum. The value of the stock option on the day of exercise of the option will be added to the income. - www.economictimes.indiatimes.com

FOODGRAIN MERCHANTS

The Tamilnadu Foodgrains Merchants Association has called for the introduction of Goods and Sales Tax (GST) from the financial year 2011-12 instead of April 2010. The draft Bill of GST has been introduced only recently, the association said in a pre-budget memorandum submitted to the Union Finance Minister, Mr Pranab Mukerjee, by the association President, Mr S.P. Jeyaprakasam, accompanied by the executive committee members, Mr P.Subash Chandra Bose and C.Deivarajan and Member of Parliament, Mr N.S.V.Chithan at New Delhi, recently. The association has demanded that all foodgrains must be exempted from tax, withdraw the levy of service tax on traders in respect lorry freight and consider issuing high denomination currency notes to facilitate easy transaction and safety, lest the credit card value be enhanced. With reference to Direct Tax Code, the association while welcoming the single code for direct taxes and the concept of financial year, has pleaded for the code being in regional language-read Tamil- to promote understanding by the tax payers. - www.thehindubusinessline.com

INSURANCE CO CAN

Insurance companies, while settling third party insurance claims, cannot deduct tax at source (TDS) on the interest earned on the compensation amount, ruled Bombay high court. A division bench of justice Sharad Bobde and justice SJ Kathawalla, in an interim order, directed the New India Assurance Company not to deduct tax from the amount of interest to be paid over a compensation granted to a widow, her two children and her mother-in-law. The court was hearing an application filed by Geeta Shah, her two children and her mother-in-law. Geeta moved the court early this month, after the insurance company, that had settled her third party claim following her husband‘s death in a road accident, had asked her to submit her PAN card, so that they can deduct tax at source from the interest earned on the compensation amount."We see no reason why the amount that is to be withdrawn by the applicants should not be taken as year to year income. Accordingly, we direct the company that the amount (of compensation) shall be deposited without deduction of tax at source," observed the court.Representing Geeta, advocate MB Kotak argued that his clients‘ annual income does not exceed Rs50,000. "Two of the claimants are minors. There money will remain with the tribunal till they attain maturity. If the interest is divided between all four claimants, the amount will never exceed Rs50,000," argued Kotak.As per the Central government rules, an insurance company has to deduct tax at source if the income on interest exceeds Rs50,000."The company is just following rules. There has to be a specific order from this court, so that I can ask my client not to deduct the TDS," advocate Bhakti Barve, representing the insurance company told the court.The judges also agreed with the petitioner‘s argument that they are not liable to pay Income Tax and so the TDS not be deducted.Geeta lost her husband Prakash in April, 2001. In January, a Motor Accidental Claims Tribunal granted the family a compensation of Rs15.61 lakh and an interest of Rs9.25 lakh. As the interest income per year exceed the limit of Rs50,000, the company wanted to deduct the TDS. - www.dna.com

CUSTOMS DUTY CUT FOR BROWNFIELD POWER PROJECTS

A Union finance ministry notification has extended the basic customs duty concession applicable on equipment for entirely new (‘greenfield‘) power projects to expansion (‘brownfield‘) of existing units, too. Issued on December 11, it says the basic customs duty of 2.5 per cent would now be applicable on brownfield expansion of existing mega projects. At present, the applicable duty is 17 per cent. All other benefits under the mega power policy available to greenfield projects would also be available to expansion units, regardless of capacity thresholds under earlier rules. The notification would benefit several players in the public and private sectors, including India‘s largest power generator, NTPC, as well as various state-run generation companies. So, too, for many others such as Tata Power, Reliance Power, GMR and GVK. Apart from the proposed capacity addition target of 78,700 Mw in the ongoing (11th)Five-Year plan, which runs till 2012, there is an estimated addition of 80,000 Mw by producers over the 12th Plan. A senior power ministry official told Business Standard on Monday, "The cabinet had already given its clearance for the revised mega power policy applicable for thermal (coal, gas, lignite and nuclear) and hydro power projects. However, the notification from the finance ministry was awaited. The whole focus is on the promotion of technology transfer and indigenous manufacturing in the field of supercritical power equipment." The official noted that concessions and benefits of the mega power policy are also being extended to supercritical projects (660 Mw and above), with the mandatory condition of setting up indigenous manufacturing facility, provided they meet the eligibility criteria. - www.business-standard.com

CENTRAL EXCISE REFUND TAXABLE: ITAT

Tax department says Central excise refund should be taxed because it is a benefit derived from a government scheme as distinct from profit derived from industrial activity IN A decision that could impact companies with operations in the north-east , Jammu & Kashmir and Himachal Pradesh, a tax tribunal in Amritsar has ruled recently that such entities will be liable to pay tax on Central excise duty refunds. The November 26 decision by the Income-tax Appellate Tribunal (ITAT), Amritsar will enable income-tax authorities to claim nearly Rs 500 crore from companies operating in these regions. Companies, such as Balaji Alloys, Raven Bhel and Pee Ell Alloys, moved the income tax appellate tribunal (ITAT) against an income-tax department notice that asked them to cough up the tax. However, the ITAT dismissed their plea late last month. Other companies awaiting an ITAT decision on the issue include Sun Pharma, Kashmir Udyog and Avita Mobile Industries. Central excise duty refunds are part of a government package to promote industrial development in J & K, northeast states and Himachal Pradesh. Under this scheme, central excise duty a tax on manufacturing paid by the companies is refunded to them.At the same time, these companies in the region are given exemptions from income-tax too. Section 80 IB of the Income-tax Act provides for exemptions from taxation on profits derived from industrial activity in backward areas. In Jammu & Kashmir, Section 80 IB will continue to operate till 2012. In other areas, 100 % exemption is granted for five years after the setting up of an industry and only 25% of the profit derived from industrial profit is taxed for the next five years. Thereafter the profit is taxed according to the prevalent rate. The tribunal, in an order on November 26, accepted the argument of the I-T department that central excise duty refund is liable to be taxed, even though the companys profit is exempt from taxation under 80 IB. The department drew a fine line between excise refund and profit generated through industrial activities in these areas. It said Central excise refund cannot be construed as profit derived from industrial activity. The refunds are in fact a benefit derived from a government scheme and distinct from profit derived from industrial activity. Therefore, refunds are not eligible for deductions under Section 80 IB of the Income-tax Act. - www.economictimes.indiatimes.com

MCA

The Ministry of Corporate Affairs (MCA) has decided to put the early-warning system on the backburner due to technical snags. Sources close to the development said the software-based system incorporated ten financial parameters for diagnosing problems in a company which was not giving the desired results. The focus of the software is detecting the diversion of public money by companies within their own concerns or elsewhere. The 10 financial parameters comprise financial ratios from the company balancesheet, but are worked out exclusively by MCA officials to detect violations of the Companies Act. The programme will be implemented once it gets corrected, officials said. Besides, the ministry has decided to keep listed public sector undertakings (PSUs) out of the purview of the early-warning system. Sources said the work of monitoring listed PSUs should not be duplicated, since the Comptroller and Auditor General (CAG) of India is already engaged in this work. Moreover, the concern of diversion of public funds, both debt and equity, is acute for the private companies. This is because, most of times, money raised from the public is used for personal gains of the company management or directors or some objectionable end-use that could be detrimental for shareholders, officials said. This, they said, becomes the root cause of financial scams. Meanwhile, MCA proposes to celebrate third week of December as "Corporate Week". During this week, it will award various companies for their achievements in their respective sectors. At present, the ministry is conducting the exercise to select this year‘s awardees. The proposed early-warning system had started as a software-based programme meant to send in alerts for a company if the quantum of related party transaction was more than 5 per sent of the domestic sales or 50 per cent or more directors resigned within a year or earning per share fluctuated more than 25 per cent compared to previous year. It aimed to bring in not only listed but also unlisted and smaller firms under its ambit. Earlier, the ministry, in its meetings with registrar of companies, had decided to conduct quarterly scrutiny of end-use of funds raised by companies through initial public offer (IPO). The scrutiny will monitor the utilisation of the money raised by companies from the public and assess if the utility matches with the IPO prospectus filed by it. This forms part of the effective technical scrutiny mechanism worked out by the ministry to detect non-compliance and non-disclosure by companies. The logic behind this exercise is that often, when a company defaults, ordinary shareholders are the worst suffers. This is because debt instrument holders, who have lent money to the company, have the first right over their assets, followed by claim of the preferential shareholders and then ordinary shareholders. - www.business-standard.com

GOVT MULLS TAX TREATY REVIEW WITH 76 NATIONS

The government is planning to comprehensively revise tax treaties with as many as 25 nations, including Switzerland and Mauritius, and re-negotiate with 51 others, to trace black money. The government plans a comprehensive revision of the existing tax treaties with 25 countries, including the Swiss Confederation, Mauritius, Malaysia, Norway and the Netherlands. among others. It might also review tax treaties with 51 nations on a limited scale, which meant the revision would only be with regard to the clauses in the treaty on exchange of information or assistance in tax collections, sources in the finance ministry said. For countries like Australia, China, France and Germany, the government may rework the double taxation avoidance agreements (DTAA) only to the extent of getting information on those who may have stashed wealth in their banks. A comprehensive revision meant the revision was not confined to the articles on exchange of information or assistance in collection of taxes but other areas in the treaty also needed to be revised, sources informed. There have been reports of crores of rupees being stashed in foreign banks. However, to get information in this regard, the government would have to revisit the clauses in the tax treaty so that information could be exchanged easily. Money allegedly stashed away by Indians in secret Swiss bank accounts had assumed political overtones in the past general elections. However, the Swiss Bankers Association had said the country‘s law and tax model convention did not permit a name-fishing expedition by a third country. India, denied it was on a "fishing expedition", seeking information about every banking account in Switzerland, allegedly deposited by Indians. Finance Minister Pranab Mukherjee had said India was only seeking details about some specific accounts from Switzerland. "They (Swiss Bankers Association) have not refused (to divulge information). They have suggested they are not for fishing and we are also not interested in fishing their whole list (of bank accounts)," Mukherjee had said. Last month, a team of finance ministry officials went to Switzerland to start negotiations on reworking the tax treaty so that information on these issues could be obtained, among other matters. The countries where tax treaties need to be revised comprehensively are mostly low-tax or no-tax nations or tax havens, and most of the foreign investments into the country come routed through these nations. Foreign investors route their investments through these nations to avoid payment of taxes in India. The comprehensive revision of tax treaty would address these issues too. Also, there were more nations like the Philippines, South Korea and Italy with which India would revise tax treaties comprehensively, the sources said. - www.business-standard.com

THE NEW DIRECT TAX CODE WILL VASTLY REDUCE THE BENEFITS FROM LIFE INSURANCE POLICIES, SAYS

In India, nearly two-thirds of all new life insurance policies are sold during the six months between September and March - an indicator that life insurance is bought primarily for tax saving. However, the New Direct Taxes Code, slated to be implemented from April 2011, proposes to do away with the disproportionate tax advantage that life insurance products have so far been enjoying over other savings instruments. The proposals of the direct tax code are still open for debate and discussions, but the underlying policy directions indicate that life insurance will be the most affected among all other investment instruments. This may affect your financial planning if you don‘t understand the implications and plan your insurance buying accordingly. PREMIUM PUNCH At present, premium payment for a life insurance policy is tax-exempt provided the premium amount is not more than 20 per cent of the sum assured. Similarly, any sum received under a life insurance policy - be it money back at regular intervals, death benefit, maturity benefits, including bonus and loyalty additions - is tax-free. But the new tax code envisages that any sum received under a life insurance policy, including death benefit, will be exempt from tax if and only if the premium paid for any of the years does not exceed 5 per cent of the sum assured. This provision, if it finds its way into the final bill, will prove the most significant because the premium installments of all life insurance policies, be it a traditional plan or a unit-liked one, as a percentage of sum assured is much higher than 5 per cent, except in the case of term assurance plans. In other words, benefits under all life insurance policies (except for term assurance) will become taxable from April 2011 unless insurers drastically reduce their premium rates to comply with the 5 per cent criteria. In other words, the sum assured of a policy should be at least 20 times of the annual premium - if you pay an annual premium of Rs 15,000 for a policy, the minimum sum assured should be Rs 3 lakh - to receive tax-free benefits from a life insurance policy. At present, insurance companies offer a minimum sum assured of only five times the annual premium - for an annual premium of Rs 15,000, you get a life cover of Rs 75,000. POLICYHOLDERS‘ LOSS Now, if life insurance products with their current features have to comply with the requirement for tax exemption under the direct tax code, the mortality charge payable by policyholders will increase four times (since the minimum sum assured will have to be increased four times). An increase of mortality charge will surely reduce the ultimate return to policyholders. Little wonder why life insurers lobbied and were successful in persuading the Insurance Regulatory and Development Authority (Irda) to exclude mortality charges when the regulator put a cap on various charges under unit-linked plans - the largest selling product in the life insurance space. Had the mortality cargebeen included in the overall cap on Ulip charges, insurers would not have any other way but to reduce the commission payable to agents in order to provide for higher sum assured to policyholders. Now that mortality charges are excluded from overall cap on Ulip charges, it is only the policyholder who will have to pay a higher cost and sacrifice return. TAXING TIMES What we have discussed so far is only one aspect of the fallout of the new tax regime on life insurance. The New Direct Taxes Code has another bearing on life insurance policies. Under the new tax regime, premium payment up to Rs 3 lakh for a life insurance policy will be tax-exempt. But if the sum assured is not equal to or higher than 20 times the annual premium, any sum received under the policy will be taxed at the marginal rate applicable to the income bracket taking into account the benefits received. For example, you have bought a policy having a sum assured of Rs 10 lakh and on maturity it amounted to Rs 30 lakh. Let us assume that your annual income at the time of the policy maturity is Rs 10 lakh. So, for income tax purposes, your total income would be considered as Rs 40 lakh (= Rs 10 lakh + Rs 30 lakh) and you shall have to pay income tax on the entire sum at the rate corresponding to the Rs 40-lakh income bracket. Let us now see what it actually means. For this we consider two separate tax regimes - one is taxed-exempt-exempt and the other is exempt-exempt-taxed. Under taxed-exempt-exempt, you invest tax-paid income while the accumulation on the invested amount and its withdrawal are exempt from tax. Under exempt-exempt-taxed, your income is not taxed initially neither the accumulation on the invested amount. You pay tax on the withdrawal amount. The table explains that till the rate of tax remains the same there is no financial difference whether it is TEE or EET regime. But if the tax rate is a progressive one, that is, the tax rate increases with the level of income, EET will yield much lower post-tax return than in TEE.Given the proposed tax slabs in the New Direct Taxes Code, you may have to pay a much higher tax on benefits received under a life insurance policy than a 10 per cent capital gains tax on investment in other instruments. - www.thetelegraph.com

GOVERNMENT OPEN TO REWRITING DIRECT TAX CODE

FINANCE minister Pranab Mukherjee on Friday said the government will strengthen and improve the public distribution system (PDS) to protect consumers, as rising prices of essential commodities continue to push up food inflation. He also indicated the government could rewrite the new direct tax code to make it acceptable to all stakeholders - Economic Times dated 12-12-2009. On the tax code, he said, the government would attempt to build consensus on the proposals. "I have laid a certain proposal in the form of a direct tax code. But it is not the Bhagwad Gita and it cannot be said that it cannot be changed," he added. The new draft direct tax code has evoked strong reactions from all quarters--individuals, industry, politicians, ministries and departments. The code proposes to phase out tax exemptions, tax individual retirement savings at the time of withdrawal and impose a minimum alternate tax on gross assets of companies. - The Economic Times, New Delhi December 12, 2009

IT TASK FORCE MOOTS DEVELOPING

The 13-member IT task force mandated to suggest measures to stimulate growth of IT, BPO and electronics hardware sector, submitted its recommendations to the Minister for Communications and IT, Mr A. Raja, on Friday. Apart from outlining opportunities for electronics and software industry in two timelines - 2014 and 2020 - the task force has also recommended developing ‘high calibre talent pool‘ through policy actions such as de-regulation of tertiary education and setting up Indian Student Aid Agency (ISAA) for demand-based funding of higher education. It has further mooted tax incentives to domestic companies for investments in technology. Nodal agency The recommendations contained in a detailed report also talk about establishing a nodal agency for the electronics industry within DIT and with direct interface to the Prime Minister‘s Office (PMO). The nodal agency functions could entail building and promoting brand India, attracting investments to India, facilitating doing business in India, R&D fund management, as well as management of a proposed manufacturing value addition fund. The National Electronics Mission may be structured on the lines of the National Solar Mission, the task force has added. "In order to attract investments, the nodal agency shall take India‘s value proposition - a world-class infrastructure and rising domestic demand - to the world. "The nodal agency shall carry out the functions as that of the Foreign Investment Implementation Authority (FIIA) specific to electronics sectors. This single nodal agency shall also facilitate vertical coordination between the Centre and the States as well as horizontal coordination among the various concerned ministries," the task force said in the report. - www.thehindubusinessline.com

DUAL GST ROLL-OUT DATE REMAINS APR 2010: ASIM

West Bengal finance minister and chairman of the Empowered Committee of State Finance Ministers, Asim Dasgupta, today reiterated that the target date to roll out dual goods and services tax (GST) remained April 1, 2010. At an interactive session with the members of Federation of Indian Chambers of Commerce and Industry(Ficci), Dasgupta said "April 1, 2010 continue to remain the target date to roll out the GST." After the government finalises which taxes are to be exempted from GST, a Constitutional amendment, giving the power of levying service tax to the state, will be required. The government is also working on a draft model for the Central, state and inter-state GST. In view of these procedural steps, there are anticipations that the April 1,2010 deadline to roll out GST might be missed. This apart, the preparations for developing IT infrastructure is also in progress. "There is a need for making a comprehensive IT structure. When you have inter-state transactions and the innovation of tracking it down through the IGST, the Government of India has to come forward with it. They are co-operating with us, and a knowledgeable agency will be deployed to finish the implementation of the IGST‘s IT structure and the connecting data with the state-level IT structure. That should happen by the middle of January. By the end of December, we will be able to make our target date concrete," earlier Dasgupta had said. On taxes like purchase tax, Dasgupta said, after "compensation and continuing adjustment", eventually the aim would be to get rid of these taxes, so as to subsume all the taxes into GST. - www.business-standard.com

CENTRE IN FAVOUR OF GST ON ALCOHOL

The Centre has turned down the proposal of the empowered group of state finance ministers to keep alcohol out of goods and services tax (GST). The government has in fact suggested that both alcohol and tobacco, which are demerit goods and considered harmful for health, should be kept under GST, with the states getting the power to levy excise duty over and above GST on alcohol. The Centre would have the same power in case of tobacco. Currently, the Centre levies excise duty on tobacco products and the states levy tax on alcohol. The empowered group in its discussion paper on GST had proposed that tobacco products should be subjected to GST, but alcoholic beverages should be kept out of it, and sales tax or value added tax continued to be levied on it as per the existing practice. It said the Centre may be allowed to levy excise duty on tobacco products over and above GST without input tax credit. "The government has sovereign powers to impose additional tax in case of demerit goods like tobacco and alcohol. The states have agreed to our suggestion of levying GST and additional tax on tobacco, but they want alcohol outside GST. We have suggested levying GST and additional tax on liquor as the Centre is doing in case of tobacco," said a finance ministry official. Excise duty collections from tobacco products like cigarettes, bidis, chewing tobacco and gutkha stood at Rs 12,526 crore in 2008-09, compared with Rs 9,591 in 2007-08 and Rs 8,213 in 2006-07. - www.business-standard.com

OECD wants India to ease FDI norms on banking, insurance

The Organisation for Economic Cooperation and Development (OECD) today lauded India‘s overseas investment policies but asked for relaxation in FDI norms for banking and insurance sector. "...today (India is) a major destination for FDI and (also) a major source of FDI," the Paris-based club of 30 developed nations said in its first report on India‘s Investment Policy Review. OECD Secretary General Angel Gurria said India has made significant progress in improving investment environment from the days of the "licence raj", which shackled industry with numerous unnecessary permits. "Crucial issues for investors have started to be tackled by the Indian government and issues like the intellectual property rights protection has been strengthened," Gurria said adding that sectoral FDI restrictions have been eased and foreign ownership caps have been lifted. However, he said some challenges still remain which India needs to tackle to attract more foreign investment. "(the report) suggests further easing of remaining FDI curbs...to support the government‘s important social and development goals. Many of the remaining FDI restrictions apply to sectors where productivity and growth need to be enhanced, such as banking, insurance and retail," he said. He said the central government has reduced the number of approvals needed for new investment and administrative procedures need to be streamlined at the level of the states. On FDI in multi brand retail, Sharma said the government does not allow FDI in the segment as it acts a security net for the millions of retailer in the country. India has managed to attract over USD 120 billion worth of FDI since 2000-01. The inflows in October jumped 56 per cent to USD 2.3 billion from USD 1.5 billion in the year ago period. Meanwhile, the OECD has proposed four areas for future cooperation between India and the club of rich nations. OECD has proposed to undertake joint future work on green growth, an important driver for India‘s sustainable development, promoting infrastructure development through public-private partnerships, nationally consistent regional FDI statistics and launch of a review of the regulatory polices of New Delhi. "We look forward to continuing cooperation with the Government of India as well with business, labour and other stakeholders in promoting further improvement in India‘s regulatory framework for investment," Gurria said. - www.economictimes.indiatimes.com

CARBON TAX REVENUE COULD HELP CREATE 14 MILLION JOBS

Revenues from a carbon tax on emissions could be used to help create 14 million jobs by 2014, a report by the UN labour agency said today. "If a price on CO2 (carbon dioxide) emissions was imposed -- at a level close to what is internationally suggested -- and if the resulting revenues were used to cut labour taxes, then employment would rise by 0.5 per cent by 2014," the report on the global jobs crisis said. The International Labour Organisation added that the amount was "equivalent to over 14.3 million net new jobs for the world economy as a whole." Lead author Raymond Torres said the estimates were based on USD 30 per tonne price for CO2 emissions. The issue of carbon pricing and taxation is among those up for discussion at the UN climate change conference that began Monday in Copenhagen. - www.presstrustofindia.com

DIRECT TAX MOP-UP MAY RISE 15% BY DEC: CBDT CHIEF

Central Board of Direct Taxes (CBDT), the apex body that administers corporate and personal income-tax, expects a 10-15% year-on-year increase in collections by December 15, the last date for paying the third installment of advance tax, according to CBDT chairman SSN Moorthy. Mr Moorthy, who was in Mumbai on Monday for a review meeting of the department, said the trend so far suggested a high rate of increase in tax collection by December 15. The rate of increase in tax collection in the fiscal year through November was a tad over 2% from the corresponding period last fiscal (FY09). This is the first positive indication by CBDT of a yearly increase in tax collections since December 2008. Collection in the first nine months of the previous fiscal fell for the first time in four years. However, the nearly 8% increase in the second-quarter GDP and reports that revenue authorities get from industries are compelling reasons for forecasting a 10-15% increase in tax collection, senior I-T officials have said. The mopup by December 15 gives a clear account of the possible collection by the fiscal year-end as 75% of advance tax collections are paid in the third installment. The trend of declining collections, which began last December, continued till the end of fiscal 2008-2009, which saw a gap of about Rs 60,000 crore between projected (Rs 3,95,000 crore) and actual collections. The dramatic increase in GDP during the September quarter helped dispel apprehensions of a possible repeat of dismal collections in the current fiscal. Total collection, including corporate and individual taxes until November 30, stood at Rs 1.84 lakh crore against the corresponding figure of Rs 80,114.9 crore in FY09. In the fiscal year to November, corporate tax collection accounted for Rs 1.15 lakh crore, marking a year-on-year increase of 3.5%. - www.economictimes.indiatimes.com

RBI MAY BRING BACK MARKET STABILISATION SCHEME

The Market Stabilisation Scheme (MSS) is likely to make a comeback as the Reserve Bank of India moves to remove excess liquidity from the banking system. Bank officials said although there was intense speculation of an increase in the Cash Reserve Ratio (CRR) by at least 50 basis points over the next two weeks, there was also considerable nervousness on the impact. The speculation has mounted in view of the surging food price inflation which is currently at 17.5 per cent. Some banks, especially American and British banks, are already speculating on the possibilities of a 50-basis-points hike in the CRR. The CRR is a zero interest balance that banks are expected to maintain with the RBI. Currently, this ratio is 5 per cent. An increase by another 50 basis points would result in removing about Rs 20,000 crore of excess liquidity. However, bankers said the flexibility for a CRR hike was limited. They said credit growth continued to be sluggish so far into the peak season and there were few takers for even sanctioned credit limits. Instead, bulk of the non-food credit offtake was mostly from the oil sector for meeting import payment obligations. The sluggish credit offtake was apparent from the low incremental credit deposit ratio. The incremental CD ratio has remained stubbornly stuck to 35 per cent. Consequently, pushing up the CRR at this juncture, the bankers said, would in turn lead to a pass through impact, implying lending rates would also move up in tandem. The HDFC Bank‘s, Chief Economist, Mr Abheek Barua, however, disagreed and said, "CRR hike is a gentle way of signalling an exit from monetary expansion. Therefore, it need not necessarily translate into credit re-pricing." Money supply growth Bankers though pointed to the broad money supply growth that is close to the RBI‘s revised target for the current financial year. The RBI target is 18 per cent, though the actual growth is 18.4 per cent. This was way below the levels of the corresponding period of fiscal 2007-08, when it was close to 24 per cent. Besides, bulk of the money supply growth is currently contributed by net bank credit to the Government sector, instead of bank credit to the commercial sector. Borrowing holiday The liquidity overhang, meanwhile, is expected to mount over the next few weeks in view of large redemptions/interest payouts from Government securities and State Development Loans. In addition, there will be a Government borrowing holiday for almost three weeks - between December 18 and January 8 next year. Inflows into bank deposits, particularly from non-repatriable deposits, have amounted during the last few weeks. In addition, there were also FII inflows, though the RBI has refrained from making any large interventions. Bankers said the non-intervention was to mitigate any expansion in high-powered money. The cumulative liquidity impact of redemptions, inflows and the government borrowing holiday was estimated at Rs 40,000 crore. This liquidity surge was likly to be a short-term feature. Given this situation, the preferred instruments for siphoning out the excess liquidity was more weighted in favour of fiscally neutral MSS security issuances. Issuance of MSS securities and unwinding of the same was taken up last year as a counter cyclical response to the global crisis. Another alternative for mopping up liquidity is through - Cash Management Bill (CMB), banker said. CMB is a short-term instrument of tenors less than 90 days. This is also an eligible SLR security. Bankers said that deployment of either of these instruments was likely to have the least impact on credit or even G-Sec yields while at the same time mop up excess liquidity effectively. - www.thehindubusinessline.com

I-T DEPARTMENT RAIDS BRICK FIRM

The Income-Tax department today launched a major search and survey operation on around 20 premises of a group engaged in brick manufacturing. I-T officials said the group‘s premises in Ahmedabad and Gandhinagar were searched today and the operation would continue tomorrow as well. During the search, a large volume of documents and papers showing unaccounted assets were seized, they said. Documents related to supply of huge quantities of bricks to big building and construction firms in Ahmedabad and Gandhinagar were also recovered, the officials said. - www.ptinews.com

TAX HIKE FOR PROFESSIONALS IN DELHI

A person earning over Rs 30,000 per month may have to pay a ‘professional tax‘ of Rs 100-200 under new tax proposals unveiled by the MCD in its 2010-11 budget, which also envisaged a hike of five per cent in property tax rates. The civic agency will focus on Commonwealth Games 2010 related infrastructure and parking projects in the coming year, for which an additional Rs 1,005 crore has been allocated, Municipal Commissioner K S Mehra said. Presenting the Revised Budget Estimates for 2009-2010 and the Budget Estimates for 2010-2011 at a special meeting of the MCD Standing Committee, Mehra said the Rs 6,346.70-crore budget will be mainly spent on sanitation and cleanliness, engineering works, health and education sectors. He said the civic body is proposing to introduce a "professional tax" for those professionals living in Delhi and having an income of more than Rs 30,000 per month. "MCD can levy such a tax under the discretionary tax system. It will be applicable to all people who are in a profession, trade or employment," he said, adding the tax rates may vary from Rs 100 to Rs 200 a month. The Commissioner also proposed an increase of five per cent in property tax in all categories and imposition of 20 per cent commercial tax on rented non-residential properties and "high-end non-residential" properties like high-class hotels, malls, air-conditioned gymnasiums and clubs having swimming pools. - www.economictimes.indiatimes.com

I-T JURISDICTION ON FOREIGN FIRMS TO BE TESTED AGAIN

HC set to hear issue of tax on stake sale in Idea Cellular The Bombay High Court has postponed a hearing on details of another significant court case on the issue of jurisdiction of Indian tax authorities on foreign companies in business deals with Indian domestic ones. MMM Holdings and New Cingular Wireless, subsidiaries of AT&T, have challenged a showcause notice from the Income Tax Department in the HC here. There was a hearing a few days earlier, and a new date has been set. The notice was served to these two companies in May, on the income from the sale of stake in Idea Cellular in favour of their Indian partners, Tata Industries and Aditya Birla Nuvo. AT&T, Grasim and Tata Industries had formed Idea Cellular in 2000. AT&T had invested in this joint venture through its Mauritius-based arm, AT&T Cellular Pvt Ltd. In 2004, the two companies of AT&T formally acquired the Mauritius outfit and then exited the JV, selling the share to Birlas and Tata in 2005. The I-T Department has also served notices to Aditya Birla Nuvo and Tata Industries, as representative assessees in the same case, for allegedly acting as agents for AT&T .In a emailed query, an AT&T spokesperson said: "We believe this tax assessment is invalid, and we intend to challenge it." Official sources said there were capital gains from the sale of the shares in Idea Cellular, an asset based in India. "Investigations have shown that the capital gain is actually accruing to AT&T, which is the controlling company for its subsidiaries, MMM Holdings and New Cingular Wireless, which in turn are holding companies for Mauritius-based AT&T Cellular," they said. AT&T Cellular, the department said, was formed exclusively for the share transaction between the three companies and to avoid paying capital gains tax in India. "Since gains are arising from an Indian asset, the tax should be paid in India," explained an official. Aditya Birla Nuvo and Tata Industries have also filed a writ against the notices. The former has also challenged a separate notice of the I-T Department, claiming Rs 300 crore as tax deducted at source on the payments made to AT&T for purchasing the Idea Cellular stake. According to department sources, Aditya Birla Nuvo had availed an exemption certificate for not paying tax on capital gains on the deal in 2005. The exemption certificate was given since there was no formal agreement for this sale and purchase. However, investigations showed later the company had a post-dated formal agreement for the deal, which makes any exemption or benefit void, said a source. A faxed query to Aditya Birla Nuvo for their views on the two notices did not elicit any response. Tata Industries has also contested the notice on being a representative assessee for AT&T in India, and a separate one claiming Rs 200 crore as capital gains for selling its stake in Idea Cellular to Aditya Birla Nuvo. Tata had sold part of its shares to Aditya Birla in India and in Mauritius. The tax claim was on the sake sale through a Mauritius-based company, which the department claimed was round-tripping (routed only to avoid tax payment). Tata Industries has paid the Rs 200-crore demand, but is contesting it. Its spokesperson said since the entire issue was in court, they would not like to comment. The tax department had earlier sent a similar showcause notice to Hutch Vodafone and is in the process of seeking details from the company. - www.business-standard.com

CENTRAL GST THRESHOLD LIKELY AT RS 10 LAKH

Businesses with more than Rs 10 lakh turnover may end up paying the central goods and services tax (CGST), with the Centre not agreeing to states‘ suggestion of keeping the threshold at Rs 1.5 crore. The empowered committee of state finance ministers had suggested separate thresholds for central GST and state GST (SGST), wherein businesses below a gross annual turnover between Rs 1.5 crore and Rs 10 lakh would be subjected only to SGST, and not CGST. The rationale behind the empowered committee‘s suggestion for different thresholds was to protect the "interests of small traders and small-scale industries, and to avoid dual control". The government suggested compensating small businesses with turnover below Rs 1.5 crore by simplifying and reducing their paperwork, instead of keeping them out of CGST. "It (the threshold) should be Rs 10 lakh for both Centre and states. We have suggested a simplified procedure for threshold below Rs 1.5 crore. They may not have to file returns frequently; registration process could be simplified; minimum audit could be prescribed for them based on risk parameters; and benefits under the compounding scheme could be extended," an official in the finance ministry told Business Standard. The Centre is worried that a variance in threshold limit could change the revenue neutral rate and also lead to problems in collecting inter-state GST (IGST), which would be applied on inter-state transfer of goods and services. "There is huge benefit in common threshold. It allows more effective monitoring. A threshold of Rs 1.5 crore will create distortions between the goods at the two sides of this level. The Rs 10 lakh cut-off is small, but if the threshold is as high as Rs 1.5 crore, it may lead to some companies underreporting their annual turnover," said Satya Poddar, partner, Ernst and Young. - www.business-standard.com

GOODS & SERVICE TAX TO BE INTRODUCED BY APRIL 1

The West Bengal Government is determined to introduce the Goods and Services Tax (GST) by the April 1, 2010 deadline, state Finance Minister Asim Dasgupta today said. ‘‘ We are determined to impose GST in our state by April one, 2010. There will be no change in the process of implementation, ‘‘ Dr Dasgupta said while addressing the national executive committee meeting of Federation of Indian Chambers of Commerce and Industry (FICCI). ‘‘ We have had positive discussions at the national and state levels regarding endorcement of GST. All the trade bodies supported introduction of this tax structure, ‘‘ he said. Explaining that GST was not ‘simply VAT plus service tax‘ but an improvement over the present system of VAT, he said it was a significant step forward in tax reforms in the country. ‘‘ If the GST is properly implemented, it would benefit the buyers to a great extent, ‘‘ the Minister said. A joint working group of officials of the state and Central Governments was working on a draft legislation for constitution amendment, draft legislation for Central GST and rules and procedures for CGST and SGST, Dr Dasgupta said. - www.centralcronical.com

Centre to minimise list of exemptions from GST

The Union ministry of finance is looking at minimising the list of exemptions from the goods and services Tax (GST), the new tax structure which will be introduced from April 1, 2010, according to Sumit Dutt Majumder, special secretary, and member of the Central Board of Excise and Customs. "There are 300 exemptions on the central excise side and 99 on the value-added tax (VAT) side. Our aim is to cover everything with minimal exemptions and at the same time try to see that all the facilities available now are not denied during the GST regime," he said. - www.business-standard.com

Govt working on Constitutional mechanism for new tax regime

With the GST (Goods and Services Tax) regime getting ready for the tentative April 1, 2010, launch, the Union Government is working on two tasks to meet the Constitutional requirements to facilitate the launch of the uniform tax structure. The first one is related to the amendment to the Constitution as the new tax regime needs to take care of the sales tax, Central sales tax and services tax - on which States and the Centre are vested with statutory powers. "The first draft is ready and is being vetted by the Law Ministry," Mr S Dutt Majumder, Member (Central Excise) of the Central Board of Excise and Customs, said. The amendment is likely to come up before Parliament in the ensuing winter session. The Government had released the First Discussion Paper on GST on Tuesday, seeking the views of the stakeholders on the new tax structure ahead of its launch. Addressing a gathering on GST at the Federation of Andhra Pradesh Chambers of Commerce and Industry (FAPCCI) here on Friday, he said the Government was also working on a Constitutional mechanism to address the crucial issue of fiscal federalism. Though the new tax regime envisaged a uniform tax structure across the country, it would still let the States to retain some powers to decide on the tax rates. "The federal nature allows the States to deviate. But how far they can go on this is a question. To address this issue, the Government is working on a Constitutional mechanism with representatives from the States and the Centre to review the permissibility of the said deviations," he said. The new system also allowed the States and Centre to retain some exemptions even after its implementation. - www.thehindubusinessline.com

CBDT for tightening norms proposed in Direct Taxes Code

The Central Board of Direct Taxes (CBDT) has urged tightening of the provisions on international taxation proposed in the new Direct Taxes Code, 2009. According to official sources, two issues needing a close look are clarity on general anti-avoidance rules (GAAR) and widening the definition of permanent establishment (PE). The ministry of finance is currently reviewing the Code for finalisation, following diverse feedback. GAAR empowers the tax department to declare an arrangement or structure worked out by a company for any business purpose as an impermissible if it is wholly aimed at avoiding tax. While the Income Tax Act of 1961 did not have any such provisions, the new Code does, albeit with riders. Officials added that the original intent for including this provision was to override provisions in double taxation avoidance agreements (DTAAs). Officials say while the provisions of individual DTAAs have their own relevance, it should not act as a tool for avoiding taxes. A case in point is the recent discussion by the central government with tax-haven countries like Mauritius, where many Indian or foreign companies are creating special purpose vehicles to route business into India just to avoid paying taxes. "If it is felt that the objective of a structure is only to evade tax in India, then GAAR should prevail over any DTAA or any other provisions," said officials. However, the Code also says that between any treaty and the Code, whichever comes into effect later should prevail. Officials say DTAAs have been worked out under the Income Tax Act, 1961. They have to be reworked so as to ensure its relevance under the new Code. Going by this, provisions of DTAAs will prevail, since they will be reworked only after the new taxes code get finalised. Therefore, it should be clearly stated in the Code that a GAAR provision should prevail over any treaty or any agreement if certain business arrangements have been entered into only for the purpose of avoiding taxes. At present, there is no concept of PE for taxing income deemed to arise in India under Section 9 of the Income Tax Act, 1961, meant to tax income of foreign entities operating in India. Currently, the relevance of PE is restricted to provisions in transfer pricing. While the definition has been incorporated in the draft Code, the scope is limited, since it only refers to a fixed place through which the business operates. CBDT has suggested reworking the definition on the basis of the model tax convention of the United Nations which includes a business site, a construction, assembly or installation project or supervisory sites, assembly and installation projects. Besides, the UN model tax convention requires only a period of six months from the time of the setting up of such an arrangement to assume it as a permanent establishment. - www.business-standard.com

CBEC starts

Indirect tax body CBEC launched electronic payment system for accounts offices of excise and service tax. It also introduced a new software to make the accounting system within the Central Board of Excise and Customs (CBEC) fully automated. Revenue Secretary P V Bhide inaugurated the e-pay system, software and a website for Chief Controller of Accounts, CBEC. After automation, information for accounting headwise, reports on collection of duty and other items will be easily available. The government wants to replicate the same system on the customs side as well, the Controller General of Accounts, CBEC, C R Sundaramurti, said. The system assumes importance at a time when the Goods and Services Tax is expected to be rolled out. "Our initial brainstorming indicates that the accounting system may have to follow the existing broad framework being inaugurated today with such changes as may become necessary on the basis of the decisions of the Empowered Committee(on GST)," Sundaramurti said. - www.financialexpress.com

Direct Tax Code poses difficulties, says Catholic church

Certain provisions in the Direct Tax Code applicable to religious and charitable institutions and trusts will pose "serious difficulties" for these organizations, the Catholic church has said. "The Direct Tax Code as conceived creates serious difficulties for societies, trusts and institutions functioning under Catholic christians community and other religions," said the Catholic Bishops Conference of India (CBCI) in a memorandum to Finance Minister Pranab Mukherjee. "The direct tax bill seems to overlook the possible dangers and harm that can be caused to genuine charitable institutions across the country," said CBCI spokesperson Babu Joseph. He said no religious institution can continue with its activities without certain financial backing not only for a short time, but for longer period of time. "What is desirable is to weed out those institutions and organizations that indulge in financial frauds and swindling of resources at the cost of the deserving people for whom such organizations exist," Joseph said. The memorandum said that in the case of the Catholic community, "the churches, convents, monasteries, dioceses, congregations, ashrams etc are established and working according to the Canon Law (Catholic church law governing the administration of personnel and temporal goods) that is internationally recognized". It said though several religious institutions across the country are registered under either the Societies Registration Act or Indian Trust Act as well as under section 12A of the IT ACT 1961, these institutions "do not come under any central or state enactments (except under section 12A of the IT Act)." As per section 12A, any income by a charitable organization is not liable to inclusion in total revenue, making this tax-free. - www.economictimes.indiatimes.com

Taxability of non-resident: Yet another U-turn by CBDT

Lately, the Central Board of Direct Taxes or CBDT (which is the highest ranking executive authority for income taxes in India) has withdrawn several of its circulars / instructions, which were relied upon by foreign companies and non resident taxpayers. In July this year, the CBDT withdrew its Instruction No. 1829 dt. 21 September 1989, which relaxed the taxability of consortium of foreign companies engaged in execution of turnkey power projects. In yet another such instance, the CBDT has recently issued Circular No. 7/2009 on 22 October 2009, withdrawing its following circulars:

• Circular No. 23 dt. 23 July 1969,
• Circular No. 163 dt. 29 May 1975; and
• Circular No. 786 dt. 7 February 2000.

E-filing of service tax to be mandatory in 2 months: CBEC

The government will make electronic filing of service tax mandatory within a couple of months, said a senior official of the Central Board of Excise and Customs (CBEC)."Electronic filing of service tax will be made compulsory in the next two months," CBEC member YG Parande told reporters on the sidelines of a PHD chamber seminar. Parande also expressed hope that the government would meet service tax collection target during the fiscal despite impact of stimulus package on revenue realisation. The government proposed to collect Rs 65,000 crore as service tax during the year. The service tax collection during the first seven months has gone down by 5.4 per cent to Rs 28,926 crore compared with corresponding period last year. Attributing decline in revenue collections to incentives given by the government to help the economy combat the impact of global slowdown, Parande said,"Certainly, the stimulus packages have had the effect (on indirect tax collections), particularly because rates were brought down." The indirect tax collections, including customs, excise and service tax, declined by 21.6 per cent to Rs 1,26,903 crore during the April-October period. - www.economictimes.indiatimes.com

GST to subsume central excise, VAT among other levies

Various levies such as excise, value added tax and service tax are proposed to be subsumed in the the Goods and Services Tax, making it a lot easier for the business and industry. ( Watch ) A discussion paper by the Empowered Committee of State Finance Minister released today said taxes levied by the central government like excise, additional excise duty and various surcharges and cesses would be part of the GST. "It will re-distribute the burden of taxation equitably between manufacturing and services bringing about a qualitative change in the tax system," Finance Minister Pranab Mukherjee said at the release function here. West Bengal Finance Minister Asim Dasgupta who heads the Empowered Committee released the paper. The GST would also subsume other levies like additional customs duty (also called countervailing duty), excise duty on medicine and toiletries, said the Paper. Besides the central levies, several taxes currently being levied at different levels will become part of the GST. These include VAT, sales tax, entertainment tax (except the one levied by the local bodies), luxury tax, taxes on lotteries, betting and gambling and state cesses and surcharges and the entry tax. Alcohol and petroleum products, however, will not be covered by the GST, though tobacco would attract GST, the Paper added. - www.economictimes.indiatimes.com

Brazil model to tax foreign capital may not work in India

A recent decision by the Brazilian government to impose a 2 per cent tax on all foreign exchange inflows has revived interest on a subject, very mention of which has been considered retrograde and impractical in some quarters in India. The subject broadly covers capital controls which connote a restraint on inflows of foreign portfolio money rather than an outright ban. What is sought to be curbed is the huge influx of short-term capital that can flit in and out of countries at short notice. Their size can be huge. In many cases, they represent money borrowed in countries such as Japan having low interest rates. These ‘carry trades‘, as they are called, have been one of the biggest threats to macro economic management in many countries.


ATTRACTIVE DESTINATIONS


Quite recently, the historically low interest rates in the U.S. have also fuelled such trades. Emerging markets such as Brazil and India have started attracting once again foreign portfolio managers, who are attracted by the higher returns they offer. At the height of the financial crisis these funds fled India and other countries. Driven by extreme risk aversion they chose the safety of the U.S. and dollar denominated assets. As the global crisis slowly lifts these emerging markets are once again proving to be attractive. But their presence in these countries has not been an unmixed blessing. Generally there is no objection to other forms of capital inflows.Foreign direct investment (FDI) is particularly welcomed, especially when it goes into greenfield ventures. The recipient country benefits in a number of ways, including employment generation, technology transfer and so on. However, in India there are sectoral caps which do restrict FDI in specific sectors.


CONVERTIBILITY ISSUES


In India, the issue is also tied to capital account convertibility or full convertibility of the rupee. India has achieved convertibility on current account. There has also been a substantial liberalisation on capital account. But full convertibility is to be achieved only after several important signposts such as fiscal consolidation are reached. This calibrated approach has served India well. The Indian economy has been resilient in the face of the global crisis.Capital controls are of different types. It can be on the basis of price as in the case of Brazil‘s new tax. It can be in the form of ceilings or quotas. In India, there is a ceiling on foreign investment in debt instruments including government paper but none at all in the equity market.Brazil‘s chief concern is the debt market, although the tax covers investment in equities too. Foreign inflows in large quantities may pose problems for interest rate management apart from currency appreciation.


DIFFERING VIEWS


But is it feasible to restrict portfolio investors in India, Brazil style? There has to be a more nuanced debate on the role of foreign institutional ivesors.Broadly speaking, there are two diametrically opposite views of their role in the external economy. On the one hand, there have been many investors in Indian stocks. But so disproportionate has been the size of their investments - both in relation to domestic institutions and the desirable investors - that their actions have caused huge swings in the stock markets. Too much liquidity flowing in from abroad has fuelled a bubble in stock prices. Up to September this year FII investment was $68.75 billion in net terms. During the same period last year they sold nearly $12 billion of stocks. The market‘s sharp decline last year and its spectacular rally this year are a direct consequence.However, it may be impractical to stop FII flows altogether. One has to look at the macro economic picture. India is one of the few emerging economies with both a current account deficit and a large fiscal deficit. Foreign capital flows have been one of the main props to the country‘s balance of payments. But the debate on whether portfolio capital should be reined in must go on. There would be plenty of learning experiences from Brazil. - www.thehindubusinessline.com

Bills on GST, direct tax code likely in winter session

Several important economic Bills that will pave way for introduction of Goods and Services Tax, Direct Taxes Code and empower the Reserve Bank to supercede erring boards of private sector banks are likely to be tabled in the winter session of the Parliament. Other bills likely to come up in the Winter Session, beginning 19 November, include a legislation for increasing voting powers of foreign entities who have stake in private sector banks from ten per cent, official sources said. A legislation to amend the Sebi Act to revise upper age limit of the members of appellate tribunal SAT, pension reforms bill, a bill to empower RBI to inspect associate entities of banks, are also expected, they said. Thirteenth action taken report on Ketan Parekh scam is also likely to be introduced in Parliament in the forthcoming session, the sources added. With just over four months left for the scheduled date of implementation of GST, a bill amending the Constitution may be presented to launch the new indirect tax system that will create a uniform market for goods and services. It will empower the Centre to tax goods beyond manufacturing stage. At present, the power to tax is entrusted with states. The bill will also empower states to tax services. The sources said a separate bill would also be presented to replace the archaic Income Tax Act with the Direct Taxes Code. DTC is likely to be implemented from 2011-12. While GST is scheduled to be introduced from 1 April, 2010, some states like Madhya Pradesh and Gujarat have been saying that implementation should be delayed as there are a host of issues to be resolved. Finance minister Pranab Mukherjee also said he would not be surprised if there is a slippage by a few months. Empowered Group of state finance ministers, which has been dealing with the Centre on GST, has already constituted working groups to suggest constitutional amendments and Model GST Act. Direct Taxes Code will replace Income Tax Act of 1961, but its draft has evoked sharp reactions on certain provisions like taxing withdrawal from long term savings and minimum alternate tax. The finance minister has assured a parliamentary panel that concerns raised by corporates and other tax payers will be addressed before any further steps are taken on direct taxes code. As far as an amendment to Banking Regulations Act to empower RBI to supercede board of banks is concerned, the Centre has the power to fire the board of directors of PSU banks since it is the single largest stakeholder. However, the RBI has no such right when it comes to other banking entities. To provide more power to RBI to deal with erring boards, the bill seeks to confer RBI with similar powers to deal with private sector and co-operative banks. - www.livemint.com

Govt may seek nod for GST bill during winter session

The centre will seek Parliament approval in the winter session for amending the Constitution and preparing the ground for introduction of the Goods and Services Tax (GST) from April 2010, a finance ministry official told ET. The move to amend the constitution and facilitate the levy and collection of tax on services by states and allow GST on imports is a clear indication of the government‘s determination to press ahead with plans to implement the indirect tax reforms from beginning of the next fiscal. The government is trying to put in the legal framework that will underpin the GST and the meeting of the empowered committee of state finance ministers with Union finance minister Pranab Mukherjee on October 30 will finalise the contours of the comprehensive value-added tax. The GST, which will replace the major indirect taxes - excise duty, service tax, value added tax and other state taxes - with a single levy, will create a national common market that is at present fragmented because of multiple levies. Though the final shape of the proposed tax is not yet clear, the Centre is keen on moving the constitutional amendment legislation in the winter session. But a number of stakeholders have expressed doubt about the government meeting the April 1, 2010, deadline. Some states, including Tamil Nadu, Madhya Pradesh and Chhattisgarh have cautioned against rushing into the new regime and suggested a roll-out only after full preparation. Reluctant to bear the cost of reform, states have also raised the issue of the Centre compensating them for any revenue loss that they may incur in the process of a switch-over to the new tax regime. Mr Mukherjee, who is keen on introducing GST from April 1, 2010, and has already given in to the states‘ demand for multiple rates, is likely to take a liberal view on the issue of compensation as well. The Centre has also initiated discussions with some large IT companies to create the technology infrastructure for the new tax and is ready to provide funding to states. - www.economictimes.indiatimes.com

I-T raids reveal problems in corporate governance

In the past three months, the income-tax department has conducted raids and searches at over a dozen listed companies. In some cases, media reports quoting unnamed I-T officials have referred to recovery of unaccounted income or assets, raising questions about compliance of corporate governance norms by some of these publicly-traded entities. While some companies have disputed the claims of I-T officials that undisclosed money had been found, others have chosen not to comment. Firms which have come under the I-T department‘s scanner include real estate major HDIL, shipping major ABG Shipyard, Supreme Infrastructure, Temptation Foods, Bombay Rayon, J Kumar Infra, Radhe Developers and the IPO-bound Polycab Wires, according to media reports and stock exchange filings. According to people closely connected with the developments, several other Mumbai and Ahmedabad based infrastructure, logistics and textile companies have also been searched in recent months by the I-T department. While the exact amount that was recovered is not known, according to I-T officials money detected, on which tax has not been paid, has totalled over Rs 1,000 crore in just three months. "This is a big corporate governance issue and implies a direct loss to investors," says Hinesh Doshi, vice-president, of the Investors‘ Grievances Forum, a SEBI registered association that typically takes up issues concerning investor interests. "Why is there large amounts of unaccounted income or undisclosed assets with these companies? I think regulatory authorities should investigate the matter, or confidence of investors will be affected," he added. Mr Doshi adds that despite news reports of raids on companies, some of them do not clarify their position to exchanges. This is despite the fact that according to listing agreements, companies have to report "material developments". BSE said that it would not like to comment while NSE did not respond to an e-mail query. Consider the case of Austral Coke. It has so far not made any official statement to the exchange on the raids conducted by the I-T department and subsequent charges faced by the company from the market regulator. While companies from the real estate sector have largely been the focus of such searches by the department, firms from other areas have also come under the scanner for allegedly not paying tax. Some companies disputed the claims of I-T officials that undisclosed money had been found. Shipping major ABG Shipyard, while confirming that search operations had taken place, told the exchanges that it has complied with income-tax laws and that authorities have not raised any claims against the company after the search operations. "The issue has two sides to it. In case any unaccounted money or assets are found in an action against a listed company, it is just not an issue of tax evasion, but also of misappropriation of the assets belonging to the shareholders," says Vinod Ambavat, a partner with professional advisory firmJainAmbavat & Associates. In another instance, tiles company Nitco said the Directorate of Revenue Intelligence had searched the premises of Nitco with respect to investigation of Customs duty payable on import of marble blocks. It had detained goods worth Rs 9.7 crore for verification, for which the bill of entry had already been filed. A senior official at Supreme Infrastructure said the search was due to some difference of opinion on some issues related to expenses. The matter is still pending with the department. However, the company has paid all the legitimate taxes for financial year 2009, the official said. HDIL, the real estate company, told the stock exchanges that I-T department had conducted a raid on office premises and the residences of its promoters. After the raid, HDIL agreed to offer approximately Rs 350 crore as income to be booked in remaining quarters of financial year 2009-10. The income of Rs 350 crore as calculated by I-T department are based on initial entries in books of accounts mostly relating to the current financial year, which the company would have booked during the current financial year on completion of transaction and taxes paid as per provisions of I-T Act, HDIL said. Under the provisions of the Income-Tax Act, income unearthed during a raid attracts interest and penalty up to 300% of the amount. The law also provides the taxpayer the right to appeal before the first appellate authority (Commissioner Appeal), against the demand by the I-T department. While the I-T department spokesperson declined to comment on the same, sources in the I-T department said the department wants to crack on big tax evaders so as to meet their targets. "There is a clear dictum to catch big fish if the department wants to meet the collection targets. There is pressure at every level," says a Mumbai based I-T official. Earlier this year, ET had reported how IT department faced with worrying situation of shrinking collections was gearing up for some high-profile raids to send out a clear message. - www.economictimes.indiatimes.com

GST rollout from April 1 tough, hints Pranab; to meet state FMs on Nov 10

Finance minister Pranab Mukherjee on Wednesday indicated that the introduction of the goods and services tax (GST) from next April is a difficult task. "We are trying (to bring in GST) let us see," Mukherjee said while inaugurating a meeting of finance secretaries and finance commissions of states. To take stock of the preparations for the proposed levy, Mukherjee said he would conduct a meeting with state finance ministers over GST in early November. He was originally slated to meet the Empowered Committee of State Finance Ministers with the final draft of GST on October 27. But with no clarity on the rate structure, the meeting has now been shifted to November 10. In fact, the Committee‘s chairman Asim Dasgupta has now roped in the National Sample Survey Organisation (NSSO) to estimate the taxpayer base for GST based on which the revenue neutral rates would be finalised. GST is scheduled to be introduced from April 1, 2010 but some states like Gujarat and Madhya Pradesh are demanding that implementation of GST should be delayed. The delay in finalising the rate structure means that the GST blueprint will also not be finalised on time. Further, it will also delay the Thirteenth Finance Commission, report, which has to factor the impact of GST on the Exchequer. Meanwhile, addressing the conference on Wednesday Mukherjee stressed on the need for fiscal consolidation. "It is expected that once the global economy begins to recover, the state governments would re-affirm their commitment to fiscal responsibility and be back onto the path of fiscal consolidation," he said. He asked states to expedite implementation of externally-aided projects so that the benefits of development could reach the poor and the country‘s image is enhanced abroad. "An area of primary concern is a slow progress of externally-aided projects. Effective implementation of these projects not only benefits the areas of projects‘ locations, but also enhances our image abroad and with the multilateral financial agencies," he said. The finance minister also asked state governments to prepare the necessary groundwork for implementation of infrastructure projects in the Public Private Partnership (PPP) mode. "There is need to create an enabling environment by way of a suitable policy framework and create a shelf of PPP projects which could be taken up for financing," he stressed. - www.financialexpress.com

BJP ups the ante against Cong over GST, tax code

The Bharatiya Janata Party (BJP), smarting from defeats in recent polls and riven by divisions at the top, is trying to live up to its role as the country‘s main Opposition party, with protests against the proposed direct tax code, seeking to rally its traditional support base among traders. The party, which has renewed its attack on Prime Minister Manmohan Singh over corruption accusations against some of his cabinet colleagues, accuses the government of a lack of clarity and discussion with stakeholders, especially traders and small taxpayers. The government, which has floated a proposed tax code for debate, says it is aimed at overhauling an archaic taxation system. "Traders, who contribute a huge chunk to the government exchequer, are kept out of the discussion on GST (goods and services tax) and the direct tax code," said BJP chief Rajnath Singh, addressing a demonstration organized by the traders‘ cell of the party in New Delhi on Tuesday. "Bureaucrats and political masters will not be allowed to decide the fate of the domestic trade and families engaged in it." He said his party would take up the issue in the winter session of Parliament, starting 19 November. On Monday, the BJP attacked the Prime Minister alleging he had "defended" telecommunications minister A. Raja while investigations were still on into the 2G (second generation) spectrum allocation. The Central Bureau of Investigation last week searched the offices of the department of telecommunications to probe the alleged "criminal conspiracy" between some officials and private companies in allocation of wireless radio spectrum. The BJP, in a memorandum addressed to the Prime Minister, demanded on Tuesday that the trading and business community be taken into confidence before proceeding with the "arbitrary manner of implementation of the changes in tax structure as done during the switchover to the VAT (valued-added tax) regime." The ruling Congress denied the BJP‘s contention. "There is a broad-based consultation on the issue and the empowered committee of finance ministers, which is looking into the matter, is a multi-state and multi-party committee," said Congress spokesperson Manish Tewari. Tuesday‘s demonstration, which wasn‘t heavily attended, was addressed by the BJP‘s top leadership, including the leader of the Opposition in the Rajya Sabha, Arun Jaitley, and former party president Murli Manohar Joshi. "The chartered accountants‘cell of the party has compiled more than 300 loopholes in the direct tax code proposals," said Jaitley, a former corporate lawyer. "We will release them soon and confront them for a proper answer."While Jaitley said the party would "stand by the people" and expose the loopholes in the government‘s direct tax code proposals, analysts say the renewed vigour in the party is part of its realization that it needs to rally popular support on mass issues. Trader representatives from at least 12 states attended the agitation, which the BJPâ˜s Singh said would be extended to state capitals and district headquarters in the coming days. demonstration said the tax One of the traders at the BJP confusing. would be uniform proposals were "We were told that VAT Now, there is nationwide, which is not true today. something called the GST being talked about and a completely new direct tax proposal is also being tried," said Suraj Prakash, a wholesaler of pulses from Punjab, who led a team of 10 party activists to the Capital to attend the demonstration. "We see it as a plot to discourage domestic retail trade and bring in international players," he said. - www.livemint.com

Tax sword lands on IT in another five months

Software companies will have to bear higher tax costs this fiscal, with the termination of tax benefits under the Software Technology Parks (STP) scheme almost a certainty. The industry expects the government to pull back the STP scheme, which provided a 10-year tax holiday to information technology (IT) services export firms. Last year, the scheme was extended by a year to March 2010. But with improvement in the global market environment in recent months, the industry does not expect the expiry of the scheme to be pushed back any further. Partha Iyengar, vice-president and research director of Gartner, said the withdrawal of the tax perks will impact all the legacy software companies, including Tata Consultancy Services (TCS), Infosys Technologies and Wipro Technologies, working under the old STP regime. "It (jump in tax rate) will depend on what quantum of business is under the old regime of STP and how much of it under the new SEZ (special economic zone)," he said. According to Barron‘s, a leading business publication in the US, since the Infosys was among the first companies to avail of the tax gains from the scheme, it may see expiration of the tax benefits earlier than its rivals. "Infosys was an early adopter of certain tax benefits, making it face expiration of these perks earlier than its peers," a report in the publication said. Once the scheme expires in March 2010, the tax rate of Infosys, India‘s second-largest tech services company is expected to move up to 25% from 13% in FY09. This, analysts believe, will put pressure on the company‘s margins, already under strain from wage hikes announced recently. T V Mohandas Pai, human resource head of Infosys, said his company‘s tax rate was already in the region of 20% and a slight increase in tax rate would not impact margins drastically. Gartner‘s Iyengar, too, feels Infosys is well-prepared for the new tax regime. "Its (expiry of STP scheme) impact is not going to be significant (on Infy‘s margins) as the company is using cost levers to offset it (impact of higher tax rates)," he said.In FY09, 82% of Infosys‘ revenues came from STP operations, 11% from SEZ and 7% attracted normal corporate tax rates levied in India. The revenue break-ups of Wipro and TCS are more or less on similar lines. A senior executive of Wipro Technologies, the third-largest IT firm, who did not want to be named as the company is in a silent period, conceded that they would be impacted by the expiry of the STP scheme. He, however, could not give the exact percentage rise in the tax rate of the company. "Some part of our business would be affected but we have moved a large part of our business to SEZ. That would provide some relief to us," the Wipro executive said. Under the SEZ Act, 2005, units operating in such zones are eligible for a deduction of 100% of profits from exports of services in the first five years and 50% in the next five years. - www.dna.com

Direct tax collections up 3.7 pc, says RBI

Direct tax collections up to September registered a growth of 3.7 per cent over the same period of last fiscal year, the Reserve Bank said. While corporate tax collections grew by 5.6 per cent, collections under personal income tax (including security transaction tax) increased by 0.38 oper cent, the RBI said in its Macroeconomic and Monetary Developments Second Quarter Review 2009-10, released here today. Advance tax collections were also reported to have been higher during Q2 FY 10, than the preceding quarter of the year, the RBI said. – www.economictimes.indiatimes.com

I-T Dept alert on fraudulent Web sites

The Chief Commissioner of Income-Tax, Andhra Pradesh, has cautioned the general public to beware of fraudulent Web sites promising tax refund through electronic mode by seeking details of credit card, PIN number of ATMs, among others. "The Income-Tax Department does not seek such details online. The taxpayers may not part with such information if they are sought through e-mail/letters issued by unauthorised persons," said a release. - www.thehindubusinessline.com

India-Swiss talks in Dec: CBDT Chief

Indian and Swiss officials will meet in Geneva in December for talks on ways to get information on flow of black money from here into that country, a senior tax authority said today. "We are going to meet the Swiss authorities at Geneva in December this year to discuss the issue of alleged black money deposited in Swiss banks and look for how the information could be provided to India through review of double taxation treaty", Central Board of Direct Taxes (CBDT) Chairman S S N Murthy told reporters here. A review and upgrade of the Double Taxation Avoidance Treaty between the two countries could help India seek information regarding black money. In August this year, Switzerland agreed to give details of 4,450 numbered accounts to US revenue authorities after they established that tax evaders had parked money in Swiss banks. - www.thehindubusinessline.com

India

India‘s central bank Governor Duvvuri Subbarao described inflation as a "regressive tax," justifying his steps yesterday to start withdrawing the monetary stimulus as price pressures build. "Inflation affects everybody," Subbarao told Bloomberg- UTV television channel today in Mumbai. "As far as public policy is concerned, it has a commitment to insulate the poor from inflation - it‘s the prime consideration for the Reserve Bank of India and the government." Subbarao ordered lenders to keep more money in government bonds in the monetary policy announcement, restricting credit flow to check excessive consumer demand. He raised the inflation forecast in India to 6.5 percent from 5 percent by March 31. Subbarao, who has injected 5.85 trillion rupees ($130 billion) of cash since September 2008 to protect the Indian economy from the worst financial crisis since the 1930s, said yesterday draining that money has become a "central issue in our policy matrix." The World Bank estimates three-quarters of Indian‘s 1.2 billion people live on less than $2 a day. Raising the statutory liquidity ratio, or the proportion of money banks need to invest in government bonds, to 25 percent from 24 percent, wouldn‘t affect the "liquidity position" of the banking system, Subbarao said yesterday. The reason is that most commercial banks have government bond holdings amounting to 27.6 percent of their deposits, he said. "We were trying to manage between growth and inflation, be supportive of growth stimulus without compromising on price stability," Subbarao said today. The central bank maintained its growth forecast at 6 percent "with an upward bias" for the year ending March 31. To contact the reporters on this story: Cherian Thomas in Mumbai at Cthomas1@bloomberg.net. - www.blomberg.com

Lok Ayukta annuls service tax on chit fund customers

The Lok Ayukta has ruled that it is ‘unjust, unreasonable and oppressive‘ on the part of cash management services to claim a service tax from customers. Upa Lok Ayukta Mr N. Krishnan Nair passed the order on a petition filed by a subscriber of a chit scheme run by the State-owned Kerala State Financial Enterprises (KSFE). The Finance Act 2007, by way of an amendment, has included cash management services on the list of services liable to pay service tax on commission earned.


AMENDED ACT


Before the amendment by the Finance Act, 2007, it was argued that chit transactions are excluded from the definition, as these fell within the definition of cash management. From July 1, 2007 (date of issue of Notification), the services tax authorities claimed that such transactions too would come within the purview of service tax. Chit is a contract between the subscriber and the foreman, in this case the KSFE. Under the Act, the KSFE is liable to pay 12.36 per cent of the commission it earns on every chit it manages as service tax. The complainant made the case that the KSFE ‘unreasonably and unjustifiably‘ passed on the liability of the service tax on its commissions to its customers. While awarding the chit, the KSFE made the complainant pay Rs 983 as service tax. In its deposition, the KSFE argued that it was the ‘accepted market practice‘ that the beneficiary of the chit should pay the service tax. Telecom service providers and insurance companies too charged their subscribers service tax. In view of this, there was nothing wrong in passing on the tax burden on chit customers. In his judgment, Mr Nair observed that it was the foreman of a chit who was liable to pay service tax on the commission and other charges collected from the customer. Similarly, it was the service provider (be it a banker, non-banking finance company, foreign exchange broker or any corporate body) who was liable to pay the service tax on the ‘taxable value of banking and other financial services provided to a customer.‘ Under statutory provisions, irrespective of the amount fixed as foreman‘s commission, the service tax had to be levied from that commission and not from the service beneficiary. KSFE‘s contention that the beneficiary of the service bears tax thereon was rejected. - www.thehindubusinessline.com

Amended IT Act comes into effect

Aimed at tightening procedures and safeguards to monitor and intercept data to prevent cybercrimes, the Information Technology (Amendment) Act, 2008, became effective today. The Act was passed by both the Houses of Parliament in December last year and was notified in February this year. Besides monitoring and interception, the amended Act also deals with the appointment of Indian Computer Emergency Response Team, which deals with computer security and situations arising from cyber attacks. "A rapid increase in the use of computer and internet has given rise to new forms of crimes like sending offensive emails and multimedia messages, child pornography, cyberterrorism, publishing sexually explicit materials in electronic form, video voyeurism, e-commerce frauds like cheating by personation etc. So, penal provisions were required to be included in the Information Technology Act, 2000," the government said in a statement today. When floated for public feedback this May, the draft amendments (particularly Section 69A) had stirred up a hornets‘ nest. Critics argued that the amendments gave the government blanket power to block news portals and other sites for ‘offensive‘ content and could be abused. The government, under Section 69A of the amended IT Act, can "block public access of any information generated, transmitted, received, stored or hosted in a computer resource" in the interest of sovereignty or integrity of India; defence of India; security of the state; friendly relations with foreign states; public order; and to prevent incitement to the commission of any cognisable offence relating to the above. These orders will be carried out by government-appointed officers, not below the rank of a joint secretary. Critics, however, argue that these rules could end up violating the rights of internet users and companies if not implemented in a "fair and just" manner. "With the advent of these rules, authorised agencies within the government now have greater administrative power. However, adequate due process should be followed in ensuring that exercise of such power does not impinge on privacy or freedom of speech and expression of citizens," said Suhaan Mukerji, principal associate of law firm Amarchand & Mangaldas. "It is a comprehensive Act and lawyers will now have to learn and use technology. Besides, it will also open a lot of litigation and the rules will decide the litigation. Moreover, crime that was not taken seriously will get court redressal," said Vijay Mukhi, e-security expert and consultant at DSK Legal. The Information Technology Act was enacted in 2000 with a view to provide legal recognition to e-commerce and e-transactions, to facilitate e-governance and prevent computer-based crimes. "However, because attack vectors are changing everyday, the IT Act can‘t be static," added Mukhi. "There would be certain security practices that are prescribed by the rules. The adjudicating officers can only decide on the civil issues," explined Data Security Council of India Chairman Shyamal Ghosh. The government, under Section 70B of the IT Act, has appointed ICERT to monitor offences under the Act. - www.business-standard.com

PROPOSED MAT RATE COULD BE CUT BY 1%

In the wake of concerns raised by India Inc over the contentious provisions in the draft Direct Taxes Code, the finance ministry has begun reviewing two of its key proposals relating to minimum alternate tax (MAT) and general anti-avoidance rules (GAAR). Based on representations from trade and industry, the Central Board of Direct Taxes (CBDT) is looking at the possibility of reducing the MAT rate from the proposed 2% on the value of gross assets. "We are looking at various options at present. The rate could be brought down by 0.5% to 1%," an official said. The Direct Taxes Code has proposed a radical shift in the concept of MAT from gross profits to gross assets. While banks will be charged at a rate of 0.25%, all others will pay at 2%. The move is aimed at widening the corporate tax base by preventing evasion. Revenue secretary PV Bhide had recently pointed this out. "The country has over 4.50 lakh registered corporate bodies of which only 50,000 corporates pay taxes. A simplistic interpretation of this could either mean that these are inefficient corporates or there is income being concealed. Our endeavor is to reduce this," he said. But tax experts argue that a 2% MAT on gross assets could end up to be as much as or even more than 25% of the profit of a company. Moreover, they say companies in sectors with a long gestation period like infrastructure would have to end up paying the tax even if they make a loss. Commenting on the revised proposal, Amitabh Singh, partner Ernst and Young said, "Instead of tinkering with the tax rate, we should look at the very principle of MAT. The earlier principle of MAT on gross profits was more appropriate. Alternatively, a low enough rate under the proposed model with a facility to carry forward could also be feasible." CBDT is also planning to dilute the stringent provisions of the proposed GAAR. At present, the Code proposes that under GAAR the revenue department can make a presumption that an arrangement is entered into by two entities for tax benefit (tax avoidance) alone, unless it is rebutted by the taxpayer. The income tax department now plans to bring in specific provisions outlining situations and conditions when such a presumption would be made so that all deals and transactions are not scanned for tax evasion. The department is also looking at the proposed. tax regime for long term savings by individuals. The Code seeks to bring savings into retirement funds into the exempt-exempt-tax (EET) regime from the current exempt-exempt-exempt system (EEE). The CBDT’s decision to review the Code comes after finance minister Pranab Mukherjee announced earlier this month that the government would re-examine seven crucial proposals in the draft Direct Taxes Code including those relating to minimum alternate tax (MAT) and EET regime for savings. The other proposals that would be reviewed include capital gains taxation in the case of non-residents; the Income Tax Act and the double taxation avoidance agreemets (DTAA); General Anti-Avoidance Rule (GAAR); issues relating to effective management control and taxation of foreign companies in India, and taxation of charitable organisations. - www.financialexpress.com

CBDT plans new measures to boost tax mop-up

Direct tax mop-up has grown barely 2% this fiscal so far despite telltale signs of a pickup in economic activity, prompting the government to look at new measures to boost collections. The collections will have to grow by over 18% for the rest of the year to achieve the enhanced target of Rs 4,00,000 crore for the year 2009-10. As part of the efforts, the Central Board of Direct Taxes (CBDT) - the apex body that administers all direct taxes such as corporate tax and personal income tax - will take a close look at the advance tax collections, scrutinise companies that enjoy tax holidays, carry out searches and even reopen certain cases. A detailed instruction about the measures to boost direct tax collections will be sent field officers, an Income Tax department official close to the developments told ET. Direct tax collections grew 3.6%in the first half of the current financial year. But due to a sharp increase in refunds, the growth has dropped to drop to less than 2%by the third week of October 2009. This has caused alarm in the government as preparations for the budget for the next year have already begun. The authorities are counting on a robust growth in direct tax collections to meet revenue targets. Indirect tax collections are expected to disappoint as the government had cut rates earlier in the year to stimulate the economy. The Indian economy is expected to grow at 10%rate in terms of current prices in 2009-10. The tax collections should grow at least at that rate, the official said. Corporate advance tax did grow at 14.7%in the second quarter, but the department feels the pace would have to be maintained for the next two quarters if the government is to reach anywhere near its target. Indications are there that companies are having a good third quarter and, therefore, advance tax collections should look up. Consumer durables companies and automobile companies have reported sharp increase in sales in recent months. The robust 10.4%increase in industrial growth in August underscores the economic recovery underway. The CBDT wants to ensure that taxpayers do not defer advance tax payments, as sometimes corporates choosing to pay up later with a penal interest. The CBDT is also exploring the opportunities thrown up by the retrospective changes in the tax provisions in the budget this year. The criterion for computation of "book profit" for the purpose of minimum alternative tax (MAT) was changed with effect from April 1, 2001. Some tax exemptions to the infrastructure sector, export oriented units and software technology parks and units in special economic zones (SEZs) were also altered from April 1 2000. For these companies, it would be double trouble as barring SEZs most are under the minimum alternate tax regime. The change that was introduced in respect of MAT would increase companies profits and enhance their tax outgo. But recovering these dues will not be easy feel experts. "If the department goes aggressive in respect of retrospectve amendments and reopens assessments that have been completed, it could lead to litigation and add to administrative costs and burden for corporates," KPMG partner, Vikas Vasal said. The investigation wing of the department has also drawn up a strategy to carry out targeted and focused searches and surveys with a view to nab tax evades and maximise tax collections. - www.economictimes.indiatimes.com

Taxes Code to be implemented from fiscal 2011-12: Pranab

The government plans to implement the Direct Taxes Code (DTC) from 2011-12 after addressing all concerns relating to controversial proposals like taxation of retirement benefits, weeding out incentives for housing sector and changes in the Minimum Alternate Tax (MAT). The proposals in the Code are only "illustrative" and are open for discussion and there is no need to think that these "have been decided," Finance Minister Pranab Mukherjee told news agency. Giving the roadmap for the Code that will replace the Income Tax Act of 1961, he said, "It will be implemented from 2011. So, the finance bill of 2011-12 would be appropriate." The government, Mukherjee said, has identified seven critical areas of concern in the Code and would take suggestions on board before finalising it. The critical areas of concern include shifting the base for computation of Minimum Alternate Tax (MAT) from book profits to assets; capital gains taxation in case of non-residents; double tax avoidance agreements; General Anti-Avoidance Rules (GAAR); taxation of foreign companies; taxation of charitable institutions; and shift to EET system for taxation of savings. On the issues relating to taxation of savings at the time of withdrawal, the Minister said, "Whether it will be EET (exempt, exempt, tax) or ETE (exempt, tax, exempt) ... is to be finally arrived at a decision. So one need not rush to the conclusion that it has been decided. That is the short point that I would like to make it clear." DTC has proposed that all savings schemes should be taxed at the time of withdrawal. Under the current dispensation, the savings schemes like Public Provident Fund (PPF) and General Provident Fund (GPF) are not taxed at all, while in some schemes like National Savings Certificate (NSC) only interest accruals are taxed. The Code is also silent on tax incentives for housing sector as against the current practice of provide rebate on repayment of interest and principal on home loans. As regards the MAT, the Code proposes to levy minimum tax on assets instead of book profits. The proposal evoked sharp reaction from the industry which described the move as introducing wealth tax on enterprises. Referring to his interaction with the representatives of the industry on the Code at Delhi and Bangalore, Mukherjee said, "I told them to express (their) views candidly ... final decision will be taken after obtaining inputs from various stake holders and in depth discussions." The direct tax reforms are basically aimed at doing away with the "plethora of exemptions", Mukherjee said, adding "if somebody analysis the Act of 1961, as amended from time to time now (will) realise that the original character of the Act is lost through a series of amendments. "All 22 alphabets are lost, than 1,2,3,4 are also put while amending the Act. It is substantially because of plethora of exemptions. So attempts have been made to make, to simplify it and in that process some critical areas and vital areas may (hav been) left out," he added. - www.economictimes.indiatimes.com

LIFE INSURANCE COS

With the new Direct Taxes Code likely to be introduced in Parliament for discussion in the winter session, life insurance companies have already started expressing grave reservations against it. Apart from concerns on the proposals for asset-based taxation and the move to the EET (exempt exempt tax) regime, a major issue for companies is if Unit Linked Insurance Policies (ULIPs) have been included under tax deduction schemes. According to Mr Vikas Vasal, Executive Director, KPMG, the Direct Taxes Code requires clarification on whether ULIPs will attract a tax deduction or whether they have been excluded. For most private insurance players, ULIPs constitute anywhere around 60-70 per cent of their portfolio. Moreover, they are popular among customers as they are more transparent and simplified in their cost structure. "Under the Direct Taxes Code, ULIPs have not been mentioned for an individual to claim deduction. Currently, under Section 80C of the Income-Tax Act ULIPs have been mentioned as separate from life insurance premiums," said Mr Vasal. Commenting on this, Mr Harpal Karlcut, CEO, Canara HSBC Oriental Bank of Commerce Life Insurance, said, "It is not for the Government to decide for the consumer on what policy one needs to purchase. We hope ULIPs have been included for deduction as before as they constitute a majority of the business for most insurance companies. "Among other reservations on the Direct Taxes Code, companies feel that while the proposal to increase the tax deduction limit to Rs 3 lakh from Rs 1 lakh may be a welcome move, the imposition of the EET regime and the asset based taxation like Minimum Alternative Tax (MAT) may prove to be an undoing for the industry. "The code proposes an increase in the five times multiple (insurance cover to premium ratio) to 20 times. We believe that it can be reduced to a more reasonable amount like 10 times," said Mr Puneet Nanda, Executive Vice-President, ICICI Prudential Life Insurance. He adds that the move to the EET regime would result in double taxation as the principal investment itself may be taxed in some cases. "This may not be desirable in the absence of other social security schemes for the retiree segment," he said. On the proposal for asset based taxation, which suggests an increase in the corporate tax to 25 per cent from 12.5 per cent or MAT at 2 per cent of gross asset value, whichever is higher, Mr Karlcut said that it would only result in companies passing on the higher costs to consumers. "Our assets actually belong to the customer and if we have to pay a higher cost, we will be forced to pass it on to the customer," he said. - www.thehindubusinessline.com

7,500 OFFSHORE TAX EVADERS COME CLEAN

Some 7,500 wealthy Americans turned over information about hidden overseas assets, including some valued at more than $100 million, ahead of a tax amnesty program‘s Thursday deadline, the top US tax collector said. Doug Shulman, commissioner of the Internal Revenue Service, said his agency would expand its crackdown on offshore tax evasion and will open new criminal investigation offices in Beijing, Panama and Sydney, Australia. The amnesty plan revealed accounts in 70 countries. "You add all of this up and it means increased risk for anyone still hiding assets offshore," Shulman said at a Wednesday briefing. "The IRS has new momentum in this entire area and in the coming months our efforts will only intensify," he said. Roughly 7,500 Americans have taken part in the amnesty program, he said, more than double the participation reported a few weeks ago. The amnesty deadline was extended once and will not be extended again. In the past, without the special program, about 100 people came forward annually. Under the amnesty program that began in September, tax cheats can declare offshore accounts and income, pay reduced fines and, in general, get immunity from criminal prosecution. The program turned up undeclared offshore accounts ranging from $10,000 to more than $100 million, Shulman said. At the heart of the US offshore tax effort is the government‘s investigation of UBS AG (UBSN.VX). The giant Swiss bank earlier this year settled a criminal probe by paying $780 million and admitting it helped US citizens evade taxes. In August, the bank agreed to turn over 4,450 names of clients with undisclosed offshore accounts to end a related civil lawsuit. Shulman said government investigators would scour the 7,500 accounts declared in the amnesty program to detect financial advisers who promoted and otherwise helped Americans skirt their tax obligations. "This entire effort is not just about UBS,"Shulman said. WAS IT VOLUNTARY? Some wanted more information about results of the program before calling it a success. Senator Carl Levin, a Democrat and chairman of the Senate Permanent Subcommittee on Investigations, has estimated the US loses $100 billion annually from international tax evasion. He questioned how many of the individuals came forward without nudging from banks. "The IRS revealed today that (at least) one person alone disclosed foreign accounts with more than $100 million in assets, but didn‘t say whether that individual acted after being informed by their bank that their name was being given to the United States," said Levin, who is a sponsor of. offshore tax abuse legislation. - www.financialexpress.com

TAX EVASION: SWISS TO AMEND LAWS

Switzerland on Wednesday said that it will amend its laws to accommodate India‘s demand for providing it with the list of tax evaders who have parked money in its banks. "We will amend the Double Taxation treaty to include tax evasion to prevent misuse ," Phillippe Welti, the Swiss ambassador to India told a news channel. Union finance minister Pranab Mukherjee had indicated that India would begin talks with Switzerland in December over amending a double-taxation agreement. He had said the government was not interested in a "roving inquiry" over unaccounted money stashed in Swiss banks. "It was agreed that we should follow the model code of the OECD (Organisation for Economic Co-operation and Development) in respect of taxations and exchange of information part. We have agreed to initiate for the amendment of the relevant clause on taxes where the exchange of information can take place," the minister had said. A revised agreement, incorporating the principles of Article 26 of the OECD‘s Model Tax Convention, would allow Switzerland to exchange information on all tax matters, including cases of tax evasion and not just criminal tax fraud as was the case till now. Switzerland had recently reached an agreement with the US to give that country‘s Internal Revenue Service details of 4,450 clients who Washington suspected of evading taxes. The Swiss Banks Association (SBA) had earlier said that Swiss Law does not permit fishing expeditions, or indiscriminate trawling through bank accounts in the hope of finding something interesting . Swiss bankers began disclosing the identity only after they were presented with evidence of terror finance after the 9/11 attack. The banks also came under pressure after the global meltdown of September 2008. At the G-20 meeting in London, the finance ministers of developing and developed countries called for concerted measures to crack down on tax havens. - www.economictimes.indiatimes.com

BAJAJ MAY NOT GET TDS BENEFIT ON INTEREST ON COURT DEPOSIT

The Bombay High Court on Monday ruled that Rahul Bajaj could not be given the benefit of tax deduction at source (TDS) deducted from the interest, which accrued on a deposit Mr Bajaj made with the court following a suit filed by Madhavlal Pittie, a shareholder of Bachhraj & Co against the Bajaj family settlement. The Bajajs wanted the tax benefits in their name and had sought a clarification from the court on this. Mr Pittie, who owns a 12.5% stake in Bachhraj & Co, had in December last year sued the Bajajs and Bachhraj & Co stating the family settlement between the Bajajs is against the interests of minority shareholders. Mr Pittie said the market value of shares sold by Bachhraj &Co to Shisir Bajaj as per the settlement does not represent the fair and reasonable market value and is unfair to other shareholders. Bachhraj & Co owned a 25% stake in Bajaj Hindusthan and it was transferred to Shisir Bajaj as an inter-se transfer between the shareholders leaving Bachhraj with no shares in the sugar company. The court said that any interest accrued on the amount deposited by Rahul Bajaj will be added to the principal amount and will be treated as deposit. The TDS deducted from the interest accrued will be issued in the name of prothonotary and senior master of the Bombay High Court, it held. The High Court had asked Bajajs to deposit Rs 80 crore with the custodian till it decides on the case that is still pending. A source close to Pittie family said the case would have far reaching implications as the petition questions the decisions by promoters which may go against the small shareholders‘interests. "We are one of the original investors of Bajaj Hindusthan and lent money to Jamnalal Bajaj in 1931 when no one was investing in the company due to the Great Depression," he said asking not to be quoted as the matter is sub-judice. When contacted, Nirajl Bajaj, chairman & MD of Mukand, declined to comment on the issue saying the matter is sub-judice. A Bajaj family insider said they wanted a clarification from the court whether they can claim the TDS benefits on the deposit with the court. "The Bajaj family was seeking a clarification from the court whether the income from deposits should be treated as income so as to make sure that the income-tax department does not raise questions about it later. The court has said that the income need not be booked till the matter is settled in the court," the family source said. The family source said that the family settlement was conducted in a fair and transparent manner through the stock exchanges. "The deal was struck at the prevailing share prices at that point in time, and there is no way one can question the family settlement," the sources added. - www.economictimes.indiatimes.com

CENTRE PULLS OUT ALL STOPS FOR GST

The Congress-led United Progressive Alliance government is pulling out all stops to ensure a timely transition to a goods and services tax (GST) and has accordingly proposed some confidence-building measures that will be debated at a special meeting of state finance ministers on 19 October. The Centre‘s proposal was included in a letter sent by Union finance minister Pranab Mukherjee earlier this week. Significantly, the minister‘s proposal came around the same time as the offer by the 13th Finance Commission on Monday to compensate state governments in case they suffer revenue losses in the transition period. GST is one of the terms of reference of the mission. Mukherjee is scheduled to chair a meeting of state finance ministers on 27 October to resolve outstanding issues and ensure GST‘s implementation by the deadline of 1 April. GST, an attempt to stitch together a common market in India, will replace a tangled web of national, state and local taxes and is aimed as the culmination of a process of indirect tax reforms that began in 1991. The levy is ideally expected to help firms produce more efficiently and give consumers more clarity about the taxes they pay on goods and services. As a part of confidence-building measures, Mukherjee wrote to Asim Dasgupta, chairman of the empowered committee of state finance ministers and also the finance minister of West Bengal, that the Central government was willing to consider a compensation package for states suffering revenue losses under the existing value-added tax (VAT) regime even though they had not carried out the committed reforms. "However, our calculation shows that continuing last year‘s compensation package without any change even in 2009-10, without the states imposing VAT on textile and sugar and increasing their basic VAT rate from 4% to 5%, will require the government of India to provide in the budget an additional amount of Rs14,000 crore for compensation to the states, which was not envisaged earlier," according to the letter, which was reviewed by Mint. His letter aimed to serve two purposes: explain the Centre‘s position on compensation and also to engage in damage control after the state finance ministers took offence at the tone of a finance ministry letter on 17 September that queried why the states should be compensated when they had not undertaken their side of the bargain. According to a person familiar with the developments but who didn‘t want to be identified, the empowered committee of state finance ministers at their meeting on 8 October, which had decided to come out with a discussion paper on the GST structure, had in fact sought an apology from the Union finance ministry. The same person said members were "furious" and threatened to walk out, even demanding dissolution of the committee. "The meeting could continue only after the officials" apologized, the same person said. Significantly, Mukherjee took note of this and said in his letter to Dasgupta that he hd "advised his officials to be careful in future".The 17 September letter had conveyed to the states that they were not entitled for VAT compensation because they had neither raised the lower rate to 5% nor brought sugar and textiles into VAT. However, the Centre has some allies in its bid to increase the scope of VAT by including sugar and textiles. In a 29 September letter addressed to Dasgupta, Gujarat finance minister Saurabh Patel said: "It is important that immediate steps are taken to bring this sector (textiles) within the net of VAT."In addition to VAT compensation, the states are also upset that the Centre has not transferred compensation for a phased reduction of Central sales tax (CST) for the previous fiscal year. Currently, CST stands at 2%. Experts have welcomed the initiative. "The removal of any impediment will certainly go a long way in GST introduction," Prashant Deshpande, senior director at audit and consulting firm Deloitte, said. - www.livemint.com

GOVT IN A FIX OVER CAT ORDER ON CBDT CHIEF

The government is in a fix over the directive of the Central Administrative Tribunal (CAT) to consider Narinder Singh, a member of the Central Board of Direct Taxes (CBDT), for the post of CBDT chairman with retrospective effect. As it cannot demote the existing chairman S S N Moorthy after appointing him in February 2009 for two years, the government may now move court against the CAT order. "It is not possible to demote Moorthy now. The government may also think of challenging the CAT‘s directive in the high court," a government official said. CAT, the body for resolving disputes related to the recruitment and conditions of service of government officials, has asked the government to implement its order in 3 months. "Singh has said that the selection took place based on incorrect facts. CAT has also agreed that some error was made during the selection process," the official added. Moorthy‘s name was suggested by the selection committee of secretaries, comprising the revenue secretary, and approved by the Appointments Committee on the Cabinet. Singh had moved the tribunal saying he was overlooked for the post of CBDT chairman despite being senior to Moorthy. Singh, a 1972-batch Indian Revenue Services (IRS) officer, was appointed a member of the board in August this year. Earlier he was director-general of Income Tax (Exemptions). He is due to retire on May 31, 2010, whereas Moorthy, a 1973-batch IRS officer, will continue in the government service till December 2010. - www.business-standard.com

INDUSTRY FAVOURS GST, BUT OPPOSES DUAL MODE

Indian industry is of the view that the proposed Goods and Services Tax (GST) will be beneficial for the economy, but the deadline of April 1, 2010, is not realistic, a leading consulting firm said in its survey. About 97 per cent of those surveyed agreed it would benefit the economy, but most of them were not in favour of a dual GST at the Centre and the state levels. The respondents agreed that the implementation of GST would warrant re-engineering of the business model and supply chain. "More than two-thirds of respondents are not in favour of a dual GST. About 75 per cent of respondents for telecom, transport and logistics segments are not in its favour. In addition, the possibility that a few states may not join the GST bandwagon presents an area of concern," the Deloitte survey said. State finance ministers, at a meeting last week, had also expressed their apprehension on the April 2010 deadline, though they were not against the GST in principle. The 304 respondents, which represented different sectors such as manufacturing, trading and services across the country, were divided over the extension of GST to products of conspicuous consumption that attract high tax rate, continuation of existing and fresh incentives or the manner of availability of tax credit on capital goods. Prashant Deshpande, senior director (indirect tax), Deloitte, said: "The most significant point to note in the survey, not entirely unexpected, is the view that the appropriate date for GST introduction is April 2011. This clearly points toward the perception of lack of preparedness on the part of trade and industry and of the government. "About 90 per cent of the respondents wanted the entry tax/octroi levy to be subsumed in GST. More than 75 per cent wanted the existing tax incentives to continue and favoured fresh tax incentives for thrust areas under GST. Around 60 per cent favoured pre-paid GST mechanism on inter-state supplies, but wanted the continuation of declaration form mechanism to track stock transfer without payment of tax. - www.business-standard.com

NEW DIRECT TAXES CODE IGNORES SMALL TRADERS, INDUSTRIES: TN CHAMBER

The new Direct Taxes Code has been loaded with tax concessions benefiting persons with high income, the Tamil Nadu Chamber of Commerce and Industry, has said. Submitting the views of the Chamber at an interaction meeting with the trade and industry representatives convened by the Union Finance Minister, Mr Pranab Mukherjee, and the Minister of State for Finance, Mr S.S. Palanimanickam, on the new Direct Taxes Code, held at New Delhi recently, the Chamber President, Mr V. Neethi Mohan, and the Secretary Mr N. Jagatheesan, called for the inclusion of the interest of small traders and industries and urged for the incorporation of necessary changes along with other changes before its implementation. They pointed out that the minimum alternate tax based on gross assets would adversely affect many companies across sectors and the tax payable at two per cent was above the international rates. Even the loss-making companies would need to pay the tax and further would tantamount to double taxation in certain cases going by records in the books.


SUGGESTIONS


Points submitted by the Chamber, among others, include tax rates for firms and LLPs, taxation of retirement benefits, housing loan interest for self-occupied persons, reopening of cases for assessment, silence on the requirement of AIR/PAN number for investments, tax on foreign companies, Trust and NGOs, increase in the capital gains tax rate, non-exemption to Special Economic Zones and so on. - www.thehindubusinessline.com

GST NOT TO AFFECT TRADE, INVESTMENT: FINMIN

The finance ministry has assured other government departments that the proposed goods and services tax (GST) would not have an adverse impact on trade and investments in the country. The issue was taken up at an internal meeting held by Cabinet secretary KM Chandrasekhar on Tuesday with top officials from all central ministries on GST and the Direct Taxes Code (DTC). Concerns were also raised over provisions in the draft Code including the proposed shift in minimum alternate tax (MAT) from gross profits to gross assets and the move from profit-linked incentives to investment-linked incentives, as many ministries are of the view that these would hurt the profitability and the performance of companies. Finance minister Pranab Mukherjee has already promised to review the proposal of MAT in the draft Code. Meanwhile, revenue secretary PV Bhide and officials from the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) held presentations on GST and the Direct Taxes Code and also fielded queries from those present. GST and the Direct Taxes Code will completely overhaul the country‘s tax regime over the next two years. GST would subsume excise duty, service tax, value-added tax and other state-level duties, and is slated to be introduced from April 1, 2010. The finance ministry is planning to implement the Direct Taxes Code from 2011-12. The Code aims to replace the current Income Tax Act, 1961. To lay the groundwork for these changes in the taxation system, finance minister Pranab Mukherjee also met representatives from trade and industry last week to discuss their concerns on the draft Code and is expected to hold more such meetings in coming days. - www.financialexpress.com

GST WILL HELP INCREASE EMPLOYMENT: KELKAR

The Goods and Services Tax (GST), which is proposed to be implemented from April 1, 2010, will help increase employment in the manufacturing sector and also reduce prices of manufactured products, said Finance Commission Chairman Vijay Kelkar. "Flawless GST reforms will remove the historic tax-induced bias against the manufacturing sector and would dramatically increase growth in the manufacturing output, exports and blue collar employment," he said. Talking to reporters here today, Kelkar said even a 2 per cent reduction in the costs of the manufacturing sector will help increase profits by more than 20 per cent. This will also attract more investments in the manufacturing sector. The only way of reducing prices is by passing on the benefits of reduced costs to the consumer, he said. "What is perhaps most attractive is the very favourable impact of a "flawless" GST on the lagging regions of India. As "tax cascading" disappears, the industry will move to the lagging regions because of the likely lower costs and thus bringing the lagging regions into the growth dynamics. For all these reasons, a flawless GST is a must and industry bodies like the Federation of Indian Chambers of Commerce and Industry, or Ficci, should undertake all possible steps to ensure this happens at an early date," he said. Earlier, addressing the national executive committee meeting of Ficci, here, Kelkar said the launching of GST would perhaps be the single-most important reform stimulus since the 1991-92 economic reforms launched by the then prime minister Narasimha Rao and finance minister Manmohan Singh. "Flawless GST and the new Direct Taxes Code will put India‘s fiscal system at the cutting edge of the world‘s market economies," he said. According to a study done by the National Council of Applied Economic Research, which was commissioned by the finance commission to assess the impact on growth in GDP and exports, Kelkar said the growth in GDP could be between 2 and 2.5 per cent with the implementation of a well-designed GST. The increase in exports can be between 10 and 14 per cent. "If we use 3 per cent as a discount rate, and lower estimate of the GDP increase of 2 per cent accruing year after year, the net present value of the GST reform exceeds half a trillion dollars," he said. He said using data from about 2 million business entities for the year 2007-08, the GST task force of the Finance Commission has generated very interesting data relating to the GST rate, which will maintain the same level of income for the Centre and states, respectively, in a minimal exemption regime. Their preliminary calculations suggest that Revenue Neutral Rate will be substantially below the present combined central and state rates. The report of the task force will be published on the Finance Commission‘s website shortly, he said. "For GST to be successful, all states and the Centre should implement it in a similar fashion. Only this will bring about the national common mark, which is one of its goals. This will be possible when there is be a common law, common exemptions, a common assessment procedure and perhaps even a common return," Kelkar added. - www.business-standard.com

TAXMEN GIVE TAX CODE THE THUMBS-DOWN

Taxmen across the country have been sharply critical of the Direct Tax Code, which was open for public comment in August, opposing proposals to cut personal income and corporate tax and scrap taxes on various transactions, on grounds that these would lead to heavy revenues losses. This was evident in a report that the National Academy of Direct Taxes, the apex training and educational body for direct taxes, has forwarded to a Central Board of Direct Taxes (CBDT)committee. The report consists of a compilation of the views of tax officials. The CBDT committee will finalise these recommendations and send it to the finance ministry, which is now examining the code. To start with, the report said the new changes proposed in the code will amount to an estimated revenue loss of Rs 55,000 crore in 2011-12. This includes personal tax revenue loss of Rs 25,000 crore and corporate tax revenue loss of Rs 30,000 crore, which includes the removal of the fringe benefit tax, the securities transaction tax, the cash withdrawal tax and reduction of corporate tax rate as suggested in the code. Taxmen are unhappy that the code was prepared without prior consultation of public, professional bodies or even the income tax department. They also believe it would be difficult to implement the code before April 2011, since training officers and staff would require considerable time .The report said the Law Commission, which introduced the original Direct Tax Code of 1961, had first constituted a committee in 1956 to examine the various provisions, invited suggestions from the public at large and then submitted the draft report in 1958 before the Act came into existence in 1961. Rather than tinkering with existing structure, the report suggested the Income Tax Act 1961 should be simplified by incorporating various circulars, notifications and settled judicial pronouncements. New tax policies then should be incorporated only after they are referred by the CBDT. Thereafter, the Law Commission should be asked to bring in a comprehensive guidance document in lucid language. "The report has suggested either retaining the corporate tax rate at 30 per cent or revising it upwards to avoid the severe shortfall in tax collection from companies. "The Direct Tax Code proposes to reduce the present rate of 33.99 per cent corporate tax to 25 per cent and its effect will be tax-neutral with withdrawal of all these exemptions/deductions available to companies. However, it is evident that most of the exemptions cannot be removed given the nature of businesses in some sectors and the existing provisions in the code itself," the report said. Similarly, in personal taxes, the code proposes to reduce taxes by widening tax slabs with the underlying presumption that it would be set off by better tax compliance. However, the Academy‘s report said personal tax rates have been reduced significantly over the years, which is evident from the sluggish growth in personal taxes in the current financiayar so far. It has also suggested restoring several tax benefits for personal savings to ensure voluntary tax compliance by individuals and the salaried class, which constitutes a large component of income tax payers. The report also said the proposal to abolish long- and short-term capital gains tax and tax capital gains at regular tax rates would prove detrimental to wealth creation, productivity and mobilisation of long-term investment capital. Instead, the report has recommended that the differential tax rate for long- and short-term capital gains tax should continue as a slab of lower rate structures, separate from the normal rate slab. For international taxation, the report has asked for clarifications on the definition of assets for companies assessed under the minimum alternate tax, and stringent laws to check understatement of assets by companies. The report, however, is of the view that the proposed increase in the capital gains tax rate from zero to 30 per cent for non-residents could adversely affect equity investments in Indian companies. The report has also sought clear guidelines for selecting cases for scrutiny and strict rules to discourage non-payment of tax deducted at source (TDS). TDS is one of the most effective and painless modes of tax collection, which ensures regular cash flow to the government, said the report. The taxmen also suggested that the provision for TDS payments be tightened for non-tax paying entities like the government, non-profit organisations and companies with huge losses. The report has also recommended revival of the settlement commission as the appellate authority with wide powers of plea bargaining, parallel to facilities of compounding and consent orders for other regulators. The report has strongly recommended against any modification to the present organisation structure saying it would hamper implementation of the new Act with the new processes.- www.business-standard.com

NEW DIRECT TAXES CODE TO BE INTRODUCED IN 2011: FM

The government will introduce the Direct Taxes Code by April 2011 after examining thoroughly seven proposals such as taxing savings schemes and clamping the Minimum Alternate Tax (MAT) on gross assets that have not found favour with the industry,trade and people at large. After an interaction with industry chambers here today,Finance Minister Pranab Mukherjee said,"The new Direct Taxes Code would have to be passed in the Parliament. It is to be effective from 2011. "He said the Code would be implemented only after "a comprehensive review" of the proposals. Revenue Secretary P V Bhide said,"The draft would be tabled in the Parliament during the winter session or the following session in February. - www.presstrustofindia.com

STATE TO SPEND OF RS 70 CR FOR GST

In a bid to make the transition to the proposed Goods and Services Tax (GST) smoother for tax payers, the ministry of finance will allot Rs 1,100 crore to state governments for creating IT infrastructure to implement the new tax structure. Karnataka has sent a proposal with a requirement of Rs 70 crore to set up the required infrastructure. "We want to create a strong IT base in favour of tax payers. We have requested states to send us proposals on their financial needs to create proper IT infrastructure," said K Jose Cyriac, additional secretary (revenue), ministry of finance on the sidelines of a Bangalore Chamber of Commerce and Industry (BCIC) summit on ‘Goods and Service Tax‘ in Bangalore. Cyriac said that all state governments were onboard the GST and that the ministry was still working on a few parameters to iron out concerns of trade bodies. The proposed Goods and Service Tax was announced by the finance ministry in the 2009 budget. The implementation of GST is expected to bring octroi, central sales tax, entry tax, stamp duty etc into a unified tax system. Pradeep Singh Kharola, commissioner of commercial taxes, government of Karnataka said that although in the long-term the system would correct itself, there was concern that the implementation of GST in the short term could lead to some imbalances. Trade representatives in Karnataka welcomed the government‘s move to simplify the tax structure. However, concerns were expressed like challenges in levying destination-based tax where it was difficult to define place of supply and consumption and compensation to states for CST phase out. Industry members said that necessary amendments to the constitution should be made well within time so as to avoid litigations on whether the Centre or the state is empowered to levy tax. They also recommended uniformity in return forms in all states and a time-bound dispute resolution system to be in place before the proposed roll out of Goods and Services Tax in April 2010. - www.business-standard.com

REARGUARD ACTION ON FOR SINGLE-TARIFF GST LEVY

A rearguard action to stitch together a common market in India through the introduction of a single goods and services tax (GST) was initiated on Thursday when the empowered committee of state finance ministers (FMs) decided to present a draft discussion paper on the tax in public domain by end-October. The discussion paper is expected to detail the implications of different models of GST, including the one announced by the empowered committee last month (Mint 17 September), which is similar to the existing value-added tax (VAT). In September, the states had proposed a lower GST rate for items of mass consumption, a regular rate for other goods and a nominal charge of 1% on precious metals. Stakeholders who prefer a simple GST without multiple rates say that once a larger audience is made aware of the costs associated with varying tariffs, it would sway opinion in favour of a single levy, according to a person familiar with the negotiations, who didn‘t want to be named on account of the sensitivity of the issue. The discussion paper is also expected to trigger dialogue between stakeholders with sharp differences on the GST model. The flip side of the multiple-rate system proposed last month would be higher tax rates. Saurabh Patel, FM of the Bharatiya Janata Party-administered Gujarat, in a note on GST prepared for the Thursday meeting, cautioned that "a two-rate structure, as is being contemplated presently, would make RNR (revenue neutral rate) higher, which may not be acceptable. A lower RNR in such a scenario would lead to a revenue loss of a permanent nature, which needs to be addressed.n "Patel had on 29 September in a letter addressed to Asim Dasgupta, chairman of the empowered committee and also West Bengal‘s FM, asked for a concept paper on GST to be placed in the public domain to bring about a discussion. Following Thursday‘s meeting of the empowered committee-a body of FMs of India‘s 35 states and Union territories entrusted with the task of coming up with a blueprint of GST- Dasgupta said a draft discussion paper on GST, a draft of the constitutional amendments and related matters would all be readied within a month. GST is an effort being jointly pursued by the Centre and the states to radically transform India‘s indirect tax structure. Originally, a single GST was to replace a tangled web of national, state and local taxes, and would have been the culmination of a long process of indirect tax reforms that began in 1991. The move to a GST regime was expected to help firms produce more efficiently and give consumers more clarity about the taxes they paid on goods and services. The empowered committee‘s decision in September is similar to VAT that states currently impose, though GST was envisaged as an improvement over the current system. "Unless governments can agree on a clean model, (the) draft may be a good way of getting inputs from the public and the business community," said Satya Poddar, partner at audit and consulancy firm Enst and Young. A fallout of Thursday‘s developments is a decline in the probability that India will move to GST by 1 April 2010, as indicated by FM Pranab Mukherjee in his Union budget speech. Some of the state FMs who attended Thursday‘s meeting said a lot of work had to be done to prepare the taxation system, including creating an information technology backbone for it. Dasgupta said the Centre would have share a big part of responsibility to upgrade the required infrastructure and bring about coordination between the states. - www.livemint.com

GST DRAFT PAPER TO BE RELEASED WITHIN A MONTH

The empowered group of state finance ministers will come out with a draft paper on goods and services tax (GST) within a month to facilitate implementation of the new tax regime by the 1 April 2010. "The responses of the states will be obtained (on the discussion paper) and the draft will be finalized for discussion. We are trying to do that within the end of this month," empowered group chairman Asim Dasgupta told reporters after a meeting here. The Group will hold discussions with the stakeholders, including trade and industry, after finalization of the draft, he added. The draft, for which a joint working group was constituted last month, would deal with important issues like legislation, rules and procedures of the GST. The group for preparing the draft comprises officials from the Finance Ministry and state revenue officials. The proposed indirect tax regime will do away with most of the indirect taxes like excise and services levied by the Centre and subsume state levies like VAT and Octroi. - www.livemint.com

GOODS AND SERVICES TAX WILL BE LEVIED ON IMPORTS TOO

Imports will attract Goods and Services Tax (GST) under the new tax regime to be ushered in from next year. The Empowered Committee of State Finance Ministers has endorsed in principle the levy of GST on imports and mandated a Joint Working Group to prepare a report in four weeks on the structural changes necessary to be adopted for this purpose. The current thinking is to have a system where the basic Customs duty will continue to be levied by the Centre on goods imported. The countervailing duty regime, however, is likely to be altered and broad-based to include both Central and State GSTs. This may imply higher incidence of countervailing duty in the proposed GST system. The current countervailing duty regime provides a level playing field only with regard to the excise duty applicable on the same goods in the domestic market. "The Empowered Committee endorsed some of the decisions relating to the preparation of GST," Dr Asim Dasgupta, Chairman of the committee, told reporters here on Thursday. A discussion paper will be released within the end of the month. A draft of the discussion paper has been circulated to the State governments so that interaction with the trade, industry and others concerned can start immediately, Dr Dasgupta said. Also, the existing Joint Working Group, comprising officials of Central and State governments, has been mandated to prepare within four weeks a report on the Constitutional amendments necessary for GST, the changes required for levy of GST on imports, a draft legislation for Central GST, a draft for common legislation for State GST besides a draft for rules and procedures that may be required to administer the GST.


FOUR-WEEK DEADLINE

"The deadline for the working group will be four weeks. The report will then be considered by the empowered committee and then the Union Finance Minister for a final view," Dr Dasgupta said. He also said that the Empowered Committee also discussed the revenue-neutral rates of States for the GST system, but no final view had been taken. Further discussions would be held in the coming days. The method of compensation in a neutral manner was also discussed. "The Finance Ministers of Gujarat, Madhya Pradesh and Chhattisgarh, the Deputy Chief Minister of Bihar and the Home Minister of Karnataka emphasised that the preparation of IT infrastructure was absolutely essential for tracking inter-State transactions and tying up with State infrastructure," Dr Dasgupta said. He also said that the Centre would have to "share a major responsibility" in upgrading the infrastructural requirements for inter-State transactions. The States also drew the attention of the Committee on the need to compensate them for the CST revenue losses arising from GST implementation. Indications are that the issue of compensation for CST revenue losses will come up at the meeting between the State Finance Ministers and the Union Finance Minister, Mr Pranab Mukherjee, slated for October 27. <>

INTER-STATE DEALS

For inter-State transactions, the Committee is now looking at a system of Integrated Goods and Services Tax (IGST). January 2010 has been set as the target date for completing the preparations for IT infrastructure. The Working Group report on service tax has more or less been accepted. - www.thehindubusinessline.com

INDIA

India has collected 3.10% more in direct taxes in September at Rs64,737, compared with the same month last year. direct-tax collections for the first half of the fiscal year to March has now touched Rs1.52 trillion, a 3.69% increase over the same period a year ago. The corporate tax kitty grew 5.55% in the first half of this fiscal with Rs1,00,572 collected as against Rs95,283 crore last year, the Central Board of Direct Taxes said in a statement. However, personal income tax collection for the first half at Rs51,897 crore saw only a marginal rise of 0.38% over the last financial year. The government set a direct tax collection target in the budget at Rs3.7 trillion. Finance minister Pranab Mukherjee later revised it to Rs4 trillion. - www.presstrustofindia.com

TAX CODE: COMMERCE DEPT BATS FOR SEZ SOPS

The new draft direct tax code that seeks to simplify and rationalise the country‘s direct tax structure has come under fire from the commerce department for its suggestions on doing away with exemptions for special economic zones (SEZs). The department has taken up the issue with the finance ministry, pointing out that removing exemptions would render the SEZ Act ineffective, a commerce department official has said. "We have started official consultations with the revenue department on the issue of the proposed withdrawal of exemptions for SEZs. We feel that removal of exemption would shake investor confidence in India and affect flow of investments into SEZs," the official said. Under the SEZ Act, developers are entitled to 100%tax exemption on profits for ten years in a block for the first fifteen years of operation. SEZ units are entitled to 100% tax exemption on export profits in the first five years of operations. They are eligible for 50%exemption on export profits for the next five years while for the following five years, units get up to 50%exemption on reinvested profits. Under the proposed direct tax code, SEZ developers would be allowed to only recover capital and revenue expenditure (except expenditure on land) and would be liable to income tax on profits made thereafter. "This means that the new direct tax code, if implemented in its present form, will lead to a total switchover from profit-linked incentives. This is contrary to the provisions of the SEZ Act," LB Singhal, director-general, export promotion council for EoUs and SEZs, told ET. In the case of SEZ units too, profit-linked incentives would be substituted by a new scheme. "All this has created a lot of uncertainty. Our council gets several queries every day from developers, units and international investors seeking clarification on the future of the SEZ policy," Mr Singhal added. The commerce department official pointed out that the department had pointed out to the finance ministry that SEZs in the country had started doing well only after the SEZ Act was put in place in 2005 and the rules were spelt out in February 2006. "While investments just trickled in the first five years since the SEZ scheme was introduced in 2005, there was a surge in investments only when the act was implemented. SEZs have attracted of Rs 1,00,000 crore in investments so far and have led to the employment of several lakhs of workers," the official said. The draft direct tax code put in place by the revenue department is being discussed extensively by various departments and ministries of the government and the industry. The finance ministry will hold a meeting with major industry chambers on October 9th to get their inputs on the draft. - www.economictimes.indiatimes.com

LIFE INSURERS SEEK CHANGES IN TAX CODE

Anticipating an adverse impact of the new Direct Tax Code, life insurance companies have demand amendments in the proposed code. The draft code had recommended a maturity tax on all life insurance products, if the term was less than 20 years and the premium exceeded 5 per cent of the sum assured. At present, there is no tax if the sum assured is five times the premium on all maturities. In a presentation to the finance ministry, the Life Insurance Council, the representative body of all life insurance companies, has recommended that all policies with a tenure of 10 years or more should be treated as long-term investment and be exempted from taxes. "First, we want insurance policies, which do not qualify for exemption at the time of investment to be treated as capital assets like mutual funds and should get the benefit of indexation,"said Life Insurance Council Secretary General SB Mathur. Insurance is the most popular instrument for saving tax under Section 80C of the Income Tax Act. Investment up to Rs 1 lakh is not taxed. But the maximum tax benefit allowed on insurance premium for any insurance policy except annuity is fixed at 20 per cent of the sum assured. The council’s recommendation is to treat investment above the limit of exemption under the capital asset class. Second, the code proposes maturity tax benefit on a 20-year policy if the premium does not exceed 5 per cent of the sum assured. Mathur said that the council has recommended increasing the premium to 10 per cent and reducing the tenure of the policy to 10 years. "The code has defined long-term investment as 20 years. This should be brought down to 10 years and policies maturing after 10 years should be subject to income tax benefit,"said Mathur. This meant that direct tax code would only benefit the higher income group as any sum received at maturity under a life insurance policy, including bonus, would be taxed if the premium did not exceed five per cent of the sum assured. All existing unit-linked insurance plans, endowment and money back and guaranteed return plans would take a hit. "Tax benefit is extremely important for insurance products as 40 per cent of total sales takes place during the last quarter and 20 per cent in March. This shows that tax benefit is important for insurance and the government should be cautious in bringing changes in tax,"said IDBI Fortis Managing Director and Chief Executive Officer GV Nageswara Rao. - www.business-standard.com

TAX BASE OF STATES WILL BE ESTIMATED SOON

The National Institute of Public Finance and Policy (NIPFP) would in the coming weeks come up with a paper that would estimate the tax base for States with regard to consumption of goods and services,its Director,Dr M.Govinda Rao,has said. This exercise would help the States decide on an appropriate revenue neutral rate (RNR) for the State component of Goods and Services Tax (GST). There has been a big debate among the States on the tax base for GST. A good estimate of the tax base is crucial for deciding the revenue neutral rate for State GST. Although multiple rates are to be adopted for State GST (SGST),there is still no consensus on the rates. Indications are that officers of the commercial tax departments of all the States will discuss the issue of revenue neutral rates (RNR) at their meeting slated for October 7. One official estimate has pegged the total tax base for GST at Rs 30.62 lakh crore. This has,however,been contested by the Madhya Pradesh Government. Dr Rao,who is also a member of the Prime Minister‘s Economic Advisory Council,said here the country does not have an efficient tax system as the central tax on services continues to be a selective tax. Selective taxation continues in spite of the recommendations of the ‘expert group on service tax‘ in 2001 that the tax should be converted into a general tax with a small list of exemptions for equity or administrative reasons and a small negative list of services with significant externalities. "For example,the service tax on freight charges of Railways is low-hanging fruit for the Government of India. But we continue to exempt it. It‘s not a small amount of money. That is why we should get the fundamentals right. If we have selective taxation of services and we want to have GST,where are we leading to," he said. India is looking to introduce a dual-GST that requires both the Central and State Governments to have the power to tax both goods and services up to the retail stage. Currently,the Centre cannot tax beyond the manufacturing stage. A Constitutional amendment will be required for the Centre to tax up to the retail stage. An amendment is also required to allow the States to tax all services. Under the proposed dual GST,there will be two administrations,multiple statutes (one for the Centre and one for each of the States),but basic features across the States will be uniform. There will be no input tax credit between Central GST and State GST,which means there will be some amount of cascading. - www.thehindubusinessline.com

GIFTS IN EXCESS OF RS 50,000 WILL BE TAXED: CBDT

Ahead of Diwali, the Income Tax department on Wednesday said that persons receiving gifts will have to pay tax on it provided the value of gift, in cash or kind, exceeds Rs 50,000. The tax would have to be paid by the recipient by including the amount in his taxable income, said a notification issued by the Central Board of Direct Taxes (CBDT) about three weeks ahead of the Diwali. The new tax norms would come into effect from October 1, CBDT said, clarifying it would not apply on gifts which are received either by relatives or on the occasion of marriages. There will also be no tax on gifts received by way of will, inheritance or in case of death of the donor. Earlier, only cash gifts were taxed the threshold for which was raised from Rs 25,000 to Rs 50,000 in April, 2006. "The IT Act 1961 has been amended with effect from October 1, 2009 to provide that any gift, in kind, being an immovable property or any other property, the value of which exceeds Rs 50,000, will become taxable in the hands of the donee, being an individual or a Hindu Undivided Family, as income from other sources...," the CBDT said. Persons receiving gifts in excess of Rs 50,000 will have to show the value in the income tax returns for assessment year 2010-11 and pay tax on it, CBDT said. Gifts received from local authorities, trusts or entities registered as charitable institutions would not attract the provisions of the new tax norms, it said. - www.timesofindia.indiatimes.com

NOW, CENTRE MULLS DUAL GST REGIME

The goods & services tax (GST) regime, which is aimed at simplifying India‘s myriad indirect tax system, may not be as simple after all. While state governments have already decided on a multiple rate structure, the Centre is also considering dual rates under the new regime. The rationale behind the proposal is to ensure equitable taxation of goods via dual rates rather than a uniform rate on all products. "Excise duty is levied on all manufactured goods-from food items and machinery to medicines. Ideally, you shouldn‘t levy excise duty at the same rate on all these goods," a finance ministry official told FE. Officials, however, said the Union finance ministry is currently studying this option and that a final decision would only be taken after October 8 when the empowered committee of state finance ministers meet Union finance minister Pranab Mukherjee to discuss their road map for GST. The proposal, if accepted, would be a significant shift in the Centre‘s stand on GST, which has been keen on a single rate for all goods, both at Central and state levels. Gearing up for GST rollout from next fiscal, Mukherjee had in this year‘s Budget converged central excise rates to a mean of 8% by reviewing items taxed at 4%. Earlier this month, state governments not only agreed to multiple rates under GST, but also finalised the rate structure. While those rates are yet to be announced, officials said the standard state GST rate would be 8-9%, with a lower rate of between 3% and 5%. There would be a separate 1% rate on precious metals, and a list of exempted commodities is also in the making. West Bengal finance minister Asim Dasgupta, who heads the empowered committee of state finance ministers, has indicated that the Centre too could have multiple rates and, therefore, would likely have a "good deal of conformity" with the state-level GST. Tax experts feel multiple rates under GST would defeat its very purpose. "Dual rates are not the most efficient way of helping low-income families. In the last few decades, most countries that have moved to GST have opted for a single rate. Further, dual rates will make the base narrow, complicate compliance and significantly undermine the benefits of GST," pointed out Ernst & Young partner Satya Poddar. - www.financialexpress.com

REVENUE SECY HINTS AT PLUGGING TAX LEAKAGES

India Inc will not only have to learn to live without subsidies once the Direct Taxes Code comes into effect, but also pay the rightful tax to the government, according to revenue secretary PV Bhide. The secretary indicated that the proposed code would bring into the tax net 90% of corporate India that doesn‘t pay any tax now. His comments come just as the finance ministry settles down to work out tax proposals in October, for the next budget due in February. "The country has over 4.50 lakh registered corporate bodies, of which only 50,000 corporates pay taxes. A simplistic interpretation of this could mean that either these are inefficient corporates or there is income being concealed. Our endeavor is to reduce this," Bhide said at a CII seminar here on Tuesday. In Budget 2009-10 the finance ministry has plugged a major loophole in the tax treatment of companies by reworking the provisions of the minimum alternate tax. Government officials told India‘s automobile manufacturing hub that even companies that do not make profits will have to pay at least 2% of their total asset value as tax. The levy promotes efficiency in the private sector, said the officials in response to criticism that it will thwart new investments. Bhide said among the tax leakages he had noticed was the special purpose vehicles that companies sometimes set up with the deliberate intention to avoid tax. "These cannot be used as vehicles for concealment," he said. The draft tax code proposes to do away with tax sops for companies. It has suggested replacing the current profit-linked incentives with investment-linked incentive for specific sectors, including special economic zones, exploration and production of mineral oil & natural gas and cold chain facilities. The loss of revenue from tax sops given to India Inc has for long been a bone of contention with the finance ministry. Tax incentives cost the exchequer Rs 68,914 crore revenue in 2008-09 and Rs 62,199 crore in 2007-08, according to the Budget document. More importantly, despite the 33.99% corporate income tax rate, the effective tax rate of companies in 2007-08 was a mere 22.24%. While public sector companies paid corporate tax at an effective rate of 25.69%, private sector companies had it easier-their tax liability was 21.28%. Across sectors, sugar, power, pharma, and IT & BPO service providers pay the lowest tax in the range of 3% to 16%. The Budget document further reveals that. the exchequer lost 11.36% of the total corporate tax collected in 2008-09, against 10.5% in 2007-08. The Direct Taxes Code would replace the current Income Tax Act (ITA) with effect from April 1, 2011 and Bhide said the Bill to this effect would be tabled in Parliament‘s winter session. Reacting to corporates‘ concerns about removal of tax sops to special economic zones, Bhide stressed that the code is meant to simplify taxation in line with international practices and is not an attempt to target any specific sector. "The aim of te new coe is to bring simplification and level-playing field for domestic and foreign tax players," he said. "DTC has to be seen in the revised context of global realities. We have to stop thinking of India as a piddly emerging power and think about India more in terms of a strong power. We have to learn to deal with this more efficiently," he said. "A few areas of concerns have been raised by corporates on issues, including SEZs and Minimum Alternate Tax. We are not here to destroy investments. But whenever we have to tax, the axe usually falls on companies that declare profits and they carry the burden of the corporate sector, which is very unfair," the revenue secretary underlined. "Most profit-linked exemptions related to SEZs are being eliminated but one has to understand that these are not WTO-compatible. An importing country now has the right to impose a countervailing duty on import of goods and services. So we end up losing taxes to the other country if the taxes are not paid in India. But for SEZ developers, the profit-linked incentives are being grandfathered and these units will have access to cheaper infrastructure," Bhide said. Moreover, there would be a sharp fall in corporate tax rates from 34% to 25%. "So one must look at the package in totality instead of saying that incentives are gone," the revenue secretary pointed out. Reacting to companies‘ concerns over MAT, Arbind Modi, joint secretary in the finance ministry, said, "Under the new tax regime, even companies not making profits will have to pay at least 2% of their total assets‘ value. This is intended to introduce efficiency in the private sector and plug the loopholes in payment of taxes." "Personal income tax is being brought down to 10% for income up to Rs 10 lakh per annum and 30% at the higher end. The IT industry has. had a tax holiday for the last 20 years and must be mature enough to understand this. There are other emerging industries that could require support. We cannot endlessly support industries," Bhide said. - www.financialexpress.com

AUDIT WATCHDOGS MAY GET MORE SERVICE SWAY

The government is considering a proposal to authorise the country‘s three statutorily recognised institutes in the fields of accounting, company secretaryship and cost accounting to expand their ambit of functioning by providing services in all three areas. The proposal, however, is being opposed by the regulators themselves as many feel that it would lead to the end of specialisation and loss of functional and regulatory autonomy, a government official, who did not want to be identified, said. The proposal, mooted by the ministry of corporate affairs, is now being deliberated upon by professional bodies including the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) and Institute of Cost and Works Accountants of India (ICWAI). The government, which is mulling key amendments relating to the work of all the three institutes, felt the need to club their regulatory functions so as to give them greater powers as well as make them more accountable in cases of any default in service by them, the official pointed out. This assumes relevance in the light of the fraudulent activities carried out in Satyam (now Mahindra Satyam) where professional lapses took place at various levels. ICAI, ICSI and ICWAI are institutes that serve as parent organs for the chartered accountants, company secretaries and cost accountants, respectively, and prepare functional as well as regulatory guidelines pertaining to their own field of work. All three institutes have been formed under separate Acts of Parliament, with their registered members entrusted to do specific work that is exclusive to them. To give the proposal a final shape and get it implemented, the government will have to go through a process of amendment of the Acts under which the institutes have been established. Even as the proposal is at a stage of discussion, the ICAI and the ICSI have voiced their opposition to the said move. They have said the qualification and regulatory function presently exercised by a single institute should not be separated. - www.economictimes.indiatimes.com

GOVT GEARING UP FOR GOODS AND SERVICES TAX BY APRIL 1, 2010

The Centre is gearing up for the implementation of the Goods and Services Tax as the April 1, 2010, deadline draws closer and is holding regular meetings with the states to make them agree to the proposed tax regime that will do away with most central and state indirect taxes. Though some states are still apprehensive that GST will do away with their fiscal autonomy, considerable progress has been made in negotiations to allay their concerns. "We are almost having meetings on a daily basis...To bring all states together and make them agree to GST was a difficult task. Some states had apprehensions. The process has made considerable progress," Central Board of Excise and Customs Chairman V Sridhar today said. He said many states are protective about their autonomy so far as taxes levied by them is concerned. After the Empowered Group of state finance ministers met on GST last week, Madhya Pradesh Finance Minister had expressed apprehension that the new tax system would take away the states‘ rights to tinker with rates. The GST will subsume the central indirect tax levies like excise and service tax and a host of state taxes like VAT, octroi and purchase tax. The structure would be a dual structure--one at the centre and the other at the states level. States have already agreed to have two rates of taxes, with one standard rate and the other lower rate for essential goods. The rates, however, have yet not been finalised. The government has set a deadline of April 1, 2010, to introduce GST. - www.economictimes.indiatimes.com

NEW TAX CODE SET TO REVOLUTIONISE INVESTMENT BEHAVIOUR

The new Direct Tax Code is set to revolutionise India‘s savings and investment behaviour. While all the changes that are there in the proposed document are for the better, the new tax code constrains the mobility of your investments making them less manageable and potentially less profitable. The new framework continues to account for these savings as individual investments rather than as an investment account. Let me explain. Today you make investments and the invested amount is not counted in your taxable income. The investment is locked in for a certain period, which is three years currently. When you redeem the investment, you don‘t pay any taxes in the current system. Under the new system, you will have to pay taxes when you redeem. (Properly speaking, the tax exemption in the new system will not be an exemption but a deferment.) However, this taxability could prove to be a deterrent to proper long-term management of these savings. Suppose you are putting away the tax-sheltered savings for a long period. At some point in the future, you may realise that the investment performance has declined. Or perhaps you are getting older and you‘d like to move some assets from an equity-oriented to a debt-oriented scheme. Now, you want these savings to be shifted to another investment. You don‘t actually need the money - you just need to shift the money to another investment of the same type. The new Code does not let you do this without taking a financial hit. When you redeem one investment to switch to another one, the tax regime marks that as the time to charge the taxes that had been deferred originally. At this point, some of the money that would otherwise have kept earning for you will have to be paid as tax. Remember, the whole point of tax deferment is that the later you pay taxes, the more you make on your investments. If the switch you need to make has come early in the planned life of the investment, then you may even decide to continue with the less suitable investment just to defer the tax. Given this tax structure, I think it‘s only fair that the government should introduce the concept of a tax-deferment account rather than stick to the outdated concept of individual tax-deferment investments. Basically, taxpayers should be allowed to switch between different tax-saving investments without this switch being treated as a redemption that triggers tax. Only when the money is finally withdrawn for consumption or for switching to some other type of investment should it trigger actual taxation. In the precomputer era, this kind of an account would have been impossible to track but now, with PAN numbers and central information repositories, the accounting would hardly be a serious issue. It‘s important to note that this concept is not a blue-sky idea. In some form or another, it exists in many countries. Not just that, the same structure already exists within the New Pension System. Members of the NPS can switch between different asst mixes and investment managers that the PFRDA (Pension Fund Regulatory and Development Authority) provides without that switch being treated as a withdrawal. If the new tax code is not to become a millstone around the neck of your investments, then such a system is also needed for non-pension savings. - www.economictimes.indiatimes.com

TAX COVER ON PREMIUM REMITTANCE SET TO GO

In what could be a double whammy for the general insurance industry, the finance ministry has ruled out any relaxation on tax deducted on premium remitted to reinsures overseas, a senior government official said. Under the current taxation norms, this amount will not be calculated as expenditure, which would lead to further taxation. The total amount that general insurers may have to shell out can exceed Rs 3,000 crore since on an average a general insurance company remits Rs 1,000 crore to overseas insurers. Currently, 13 general insurers are operating in the country, including four public sector companies. Earlier, the IT department had slapped notices on companies such as Cholamandalam, Bharti AXA, United India and Royal Sundaram for non-payment of taxes. "Foreign reinsures are not willing to share the burden. This will lead to an increase of 40% in my reinsurance cost, which we‘ll be forced to pass on to our customers. This anomaly should be addressed at the earliest so as to put us on a par with other industries," said M Ramadoss, CMD, Oriental Insurance. With the current TDS rate around 40%, insurance regulator Irda has already raised this issue with the finance ministry."This is a unique practice and we‘ve sought clarification and exemptions for general insurers," said an Irda official, who did not wish to be quoted. The finance ministry, however, has ruled out any blanket cover since such relaxation would raise similar demands from other sectors such as export and IT."Besides, this remittance will not be treated as expenditure under Sec 40 (a) (i) since insurance companies failed to follow the procedure under Sec 195 (3)," said a senior finance ministry official who wished to remain anonymous. As per Sec 195, if a person wants to make payments to a non-resident and those payments are not explicitly declared exempt by the provisions of the IT Act, the person making the payments has to deduct tax at source and can free himself of the liability only if he gets the concurrence of the assessing officer. - www.economictimes.indiatimes.com

GST IN TROUBLE: SOME STATES OPPOSE MERGER OF LOCAL TAXES

The Centre‘s efforts to introduce the proposed Goods and Services Tax (GST) from April 1 next year have hit a roadblock as some states do not want local levies like purchase tax and octroi merged in the new indirect tax. The GST is expected to subsume most of the taxes levied by the Centre like central excise and service tax, and those charged by the states such as VAT, purchase tax, octroi and others. However, a finance ministry official said, "Some states like Punjab and Haryana are opposing this as they do not want to remove the purchase tax on agricultural products as they are a major source of income for them while others like Maharashtra do not want to do away with octroi." Purchase tax is levied by some states on agricultural produce when purchased from the state and taken to some other state, while octroi is levied on various articles brought into a district for consumption. Moreover, states are worried about their fiscal autonomy as there is an unsaid distrust between the Centre and the states on financial matters. MP finance minister Raghav Ji has expressed apprehensions that GST would take away the fiscal autonomy of states by tinkering with state tax rates. The Empowered Group of state finance ministers will meet finance minister Pranab Mukherjee on October 8 to decide on the goods and services to be included in the new tax system, only after which tax rates could be decided. - www.financialexpress.com

Indirect tax kitty bolsters revival hopes

After India Inc witnessed a 14.7% rise in advance tax payments for the second quarter of the current fiscal, the industry has further broadened its way towards recovery with the indirect tax receipts, for the month of August, recording a significant surge. "The industry is clearly showing signs of revival. Excise collection in August is up 22.7% compared to last month. We are hopeful of meeting the target," V Sridhar, chairman of Central Board of Excise and Customs, said on Friday. The rise in excise duty collections is led by improvement in sectors like sugar, that grew about 16%, petroleum products (by about 4 to 5%) and cigarettes, Sridhar said on the sidelines of a CII seminar. Collections from customs duty have also improved, the CBEC chief said. "From a negative growth of 30% in July, customs duty collections have slightly improved to a minus 28% in August," Sridhar said. But amongst the three components of indirect tax, it is the service tax that has performed the best. "Service tax has done the best among the three. There is a negative 1.3% growth in service tax in August," he said. As per the Budget estimate, indirect tax collections are targeted at Rs 2.7 lakh crore for 2009-10. But duty cuts in service tax and excise duty, along with the global slowdown, has affected the exchequer‘s tax kitty. Indirect tax collections between April and July this year dipped 28% to 63,623 crore as against Rs 88,395 crore recorded a year ago. Customs duty collections were the worst hit and declined 36% to Rs 24,324 crore between April and July 2009. - www.financialexpress.com

NEW TAX MAY PUSH UP COST OF NON-LIFE COVER

Cost of insurance for property and health could rise next year as proposed taxes on investment income will wipe out whatever margins are left for non-life companies. Balance sheet data for ‘08-09 of the non-life insurance companies in India reveal that whatever net profit was reported by the companies was on account of investment income. Last fiscal, the non-life industry collectively made underwriting losses (amount of claims exceeding premium income) of Rs 4,723cr. But despite these losses the industry managed to stay in the black thanks to investment income of Rs 5,806cr. Part of this is from interest and dividend earnings but a significant portion is from profit from sale of investments. "The industry reported underwriting losses of Rs 4,723cr in ‘08-09 which was covered because of investment income. With the tax on investment income there is no other way out but to raise rates" said SL Mohan, secretary general, General Insurance Council - an association of non-life insurance companies. Changes in income tax announced in the budget this year which have been reiterated in the new direct tax code (DTC) would mean that companies will have to pay tax on profits from sale of investments. "The non-life industry is treated like no other industry as it is not extended the benefit of capital gains tax and will be taxed at the marginal rate of over 30% even as everyone else including banks, investment funds and fund managers are eligible for long-term capital gains. That is the inequity" said Bhargav Dasgupta, managing director, ICICI Lombard General Insurance. Besides this the direct tax code requires insurance companies to pay tax on investment income and also a minimum alternate tax on 2% of their assets. Like life insurers the non-life insurance industry also claims that the proposals wrongly include technical reserves, on which policyholders have claims, as part of an insurance company‘s own assets. What is worse the DTC requires non-life companies to pay tax on notional gains in value of their technical reserves. The general insurance industry has seen its margins come under pressure in ‘08-09 as insurance rates fell due to competition while at the same time investment income also dropped. Compared to an operating profit of Rs 560cr in ‘07-08, the non-life industry reported an operating loss of Rs 1950cr. "We have three main tax issues. First is the tax on investment income, second is the service tax that has been made applicable on reinsurance and third the decision by the IT department to tax reserves for unexpired risks" said Mr Mohan. If an insurance company accepts premium towards an annual policy on the last day of the fiscal, the Insurance Regulatory and Development Authority allows insurers to book only 1/365th of the premium for the closing year and show the rest as reserves for unexpired risks. The Income Tax department wants the companies to pay tax on half the premium booked even on the last day.- www.economictimes.indiatims.com

HC PUTS SOFTWARE FROM GLOBAL VENDORS IN TDS NET

THE Karnataka High Court has ruled that technology firms are subject to withholding taxdeduction of tax at sourceon purchase of software from global vendors such as Microsoft. This would push technology firms and branded software distributors into a corner as they will be required to withhold 10-20 % of their software purchase payments in the future. The division bench of Justice DV Shylendra Kumar and Justice Arvind Kumar pronounced the judgment on Thursday while upholding an appeal by the income-tax department that technology firms were legally obliged to withhold tax on software purchases. The order is with retrospective effect. The I-T departments argument was on the premise that any software purchase amounted to royalty payment for a licence to use it, and should not be deemed as a mere purchase of good that is excluded from withholding tax. The order could impact branded software vendors such as Microsoft, third-party distributors like Sonata Software, hardware-makers like Samsung and GE that bundle branded software with their products , technology firms like Infosys when they effect a licensing of software , or even the local arms of HP and IBM, which could be licensing software from their parent. This is the first court order that has gone against the taxpayer in income tax disputes relating to withholding tax on software purchase. Indeed, the Karnataka High Court intervention came after the Income Tax Tribunal had ruled in favour of taxpayers, prompting the department to go on appeal. The bench did not venture into the question whether purchase of software amounted to royalty payment or not. The court merely said firms (buying software) should not sit on judgment whether the recepient is obliged to pay tax in the country . They have to deduct tax the moment they make payments to a non-resident party. To an extent, this leaves several issues open-ended , Abhishek Goenka, partner at BMR Advisors, said. A clear perspective will emerge only after the affected parties study the court order in detail. On Thursday, the division bench read out the order and a certified copy on the same is expected only in the coming days. Not surpisingly, most of the affected parties including technology firms, software distributors and hardware makers did not wish to offer comments when ET contacted them. The high court had clubbed several cases relating to withholding tax on software purchase in Thursdays judgment. More than technology services firms, it is branded software distributors and hardware manufactured who bundle software who are going to be affected in a significant way and several companies could become interested parties in this litigation going forward as they need to address the question whether they are obliged to pay taxes in the country for sale of software, Mr Goenka of BMR said. It is believed withholding tax of roughly Rs 500-600 crore is locked up in the disputes before the high court. But this could not be verified independently. - www.conomictimes.indiatimes.com

DIRECT TAX CODE NEEDS OVERHAUL: EXPERTS

A raft of tax experts and professional bodies including chambers of commerce across the country thinks virtually every line of the new direct tax code may have to be rewritten to shield domestic companies and their operations,both in India and overseas. The new code will have an effect on India IT companies, especially those with business operations abroad,said Himanshu Patel,senior tax expert with Deloitte,at a meeting organised by the Eastern Regional Council of the Institute of Company Secretaries of India (ICSI- EIRC). According to Mr Patel,the transfer pricing mechanism provisions will have a negative impact on international transactions unless these are revised sufficiently to deal with some of the crucial issues like period of agreement and threshold equity limits. Stock market stalwarts like Rakesh Jhunjhunwala and Shankar Sharma too have expressed their fear about outflows of foreign funds by the end of the current financial year if the new Tax Code sought to be in place by April 2011 is not revised,a tax expert pointed out. ICSI-EIRC chairman Ashok Pareek thinks that the draft direct tax code,which is doing the rounds across the length and breadth of the country,is likely to take time before it is finalised. Views and comments from various sections will have to be taken into account by the ministry before they can introduce the final version in Parliament,he added. The code has,for the first time,introduced the advance pricing agreement in which the definition of associated enterprises has been made more stringent by lowering some of the important threshold limits currently existing under the scope of transfer pricing regulations. While voting power thresholds have been lowered to 10% from 26% earlier,loan threshold has been reduced to 26% compared to 51% prescribed earlier to qualify entities as associated enterprises. Indeed,the previous threshold limits on shareholding,loan,directorship etc,Mr Patel explained,was linked to a reasonable control over a business entity. For instance,an equity holding of 26% gives the shareholder power to block special resolutions. A 10% holding in a foreign entity may not give a shareholder even minimum control over its activities. To consider such an entity as an associated enterprise for the purpose of taxation under transfer pricing regulations,is certainly unfair,he said. - www.economictimes.indiatimes.com

SOFTWARE BUGS DELAY INCOME-TAX REFUNDS

Even as income-tax payers grapple with non-acceptance of their returns, its surely not a good time to expect refunds. Refunds across the country will be enormously delayed as the software at the new Centralised Processing Centre (CPC) of the I-T department is yet to be rid of bugs. The net result is that processing tax returns and refunds of the assessment year 2008-09 may not be completed before March 2010. Though the software is in place, the system is yet to get on to a complete working module. Its in the nascent stage and once the software gets on track, it speed up the process. The software will be fully operational by next year. Tax returns with errors are being returned. With delay in processing of returns, it impact refunds too, explained IT officials. After filing returns online, a tax payer/CA/tax consultant will have to download the acknowledgement and send it to CPC through ordinary post. We have been returning acknowledgements sent through couriers and Speed Posts to the assesses. Were also rejecting printouts of low quality where details cannot be read and information is wrong, officials added. - www.economictimes.indiatimes.com

INSURANCE CLAIMS MAY BE TAXABLE UNDER NEW CODE

The insurance claims paid to policy holders in the event of death or disability will be subject to payment of income tax if the new Direct Taxes Code proposals are implemented. The Code proposes that contributions by the insured are subject to the EET method of taxation of savings. This means that the sum received under a life insurance policy, including any bonus, is taxed. Only a pure life insurance policy is exempted from tax. In a pure life insurance policy, the policy holder receives money only when death occurs. Life insurance companies are perturbed that the tax proposal could hit their business. Life insurers are taking up the issue with the government through the Life Insurance Council. According to an insurance company official, the council is sending its suggestions to the government and the regulator. "Even if you are in the lower tax bracket, when you get the sum assured, it will be a lumpsum amount. This would catapult you to a higher tax bracket and you will pay higher taxes," said Mr Kamalji Sahay, CEO, Star Union Dai-ichi Life Insurance. Only term insurance policies would be exempted. Both ULIPs and traditional products would be taxed. The return would be taxed even in case of disability or death, said Mr. V. Srinivasan, Chief Financial Officer, Bharti AXA Life Insurance. The Direct Taxes Code has a section which says that maturity proceeds of an insurance policy shall be exempt only if the premium does not exceed 5 per cent of the capital sum assured. This means that for a premium of Rs 10,000 the sum assured will be exempted only if it is greater than Rs 2 lakh. However, most of the products sold by companies do not match this criteria, Mr Srinivasan said. There is also ambiguity on whether only the returns will be taxed and not the principal. It is not clear whether the tax would be applied on the basis of the real value of money invested or on the nominal value, Mr S.B. Mathur, Secretary-General, Life Insurance Council, said. For example, a person buying a traditional endowment plan could get a sum assured of Rs 5 lakh by paying a premium of Rs 4 lakh. It is not clear whether the policy holder would be taxed on the difference (Rs 1 lakh) or on the total sum assured of Rs 5 lakh that he receives at the end of the policy tenure. - www.thehindubusinessline.com

AUDIT WATCHDOGS MAY GET MORE SERVICE SWAY

The government is considering a proposal to authorise the country‘s three statutorily recognised institutes in the fields of accounting, company secretaryship and cost accounting to expand their ambit of functioning by providing services in all three areas. The proposal, however, is being opposed by the regulators themselves as many feel that it would lead to the end of specialisation and loss of functional and regulatory autonomy, a government official, who did not want to be identified, said. The proposal, mooted by the ministry of corporate affairs, is now being deliberated upon by professional bodies including the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI)and Institute of Cost and Works Accountants of India (ICWAI). The government, which is mulling key amendments relating to the work of all the three institutes, felt the need to club their regulatory functions so as to give them greater powers as well as make them more accountable in cases of any default in service by them, the official pointed out. This assumes relevance in the light of the fraudulent activities carried out in Satyam (now Mahindra Satyam)where professional lapses took place at various levels. ICAI, ICSI and ICWAI are institutes that serve as parent organs for the chartered accountants, company secretaries and cost accountants, respectively, and prepare functional as well as regulatory guidelines pertaining to their own field of work. All three institutes have been formed under separate Acts of Parliament, with their registered members entrusted to do specific work that is exclusive to them. To give the proposal a final shape and get it implemented, the government will have to go through a process of amendment of the Acts under which the institutes have been established. Even as the proposal is at a stage of discussion, the ICAI and the ICSI have voiced their opposition to the said move. They have said the qualification and regulatory function presently exercised by a single institute should not be separated.

FM TO DISCUSS

Finance Minister Pranab Mukherjee will meet leading industry chambers here on October 9 to discuss issues arising out of the proposed new direct tax regime. The three industry bodies, CII, FICCI and Assocham are expected to take a common stand on the different contentious issues that will confront the businesses once the new direct tax code comes into effect. It is proposed in the draft code that minimum alternate tax (MAT) of 2 per cent would apply on the gross asset value of a company instead of current levy of 15 per cent on book profits. The industry is believed to be opposed to this draft provision on the ground that it would have to pay MAT from the day it acquires both movable and immovable assets. Last month, the government released the direct tax code for public discourse and when approved by parliament it would replace the Income Tax Act of 1961 and other related laws. The draft tax code also suggests abolishing the controversial securities transaction tax but seeks to reintroduce long-term capital gains tax. - www.financialexpress.com

ADVANCE TAX COLLECTIONS UP THREEFOLD IN SECOND QUARTER

New Delhi:Taxes paid by Indian companies more than doubled in the three months through September, suggesting growth in Asia‘s third biggest economy may be strengthening. Advance taxes paid by local companies rose to Rs44,010 crore in the July-September quarter from Rs20,720 crore in the previous three months and 14.7% more than the same quarter last year, said a finance ministry official who declined to be identified. Companies make advance payments once every three months, based on their estimates of income for the quarter. Reliance Industries Ltd, the country‘s most valuable company, paid Rs1,160 crore in advance taxes in the quarter to 30 September, 69% more than the April-June period, the finance ministry official told reporters in New Delhi on Tuesday. State Bank of India paid Rs1,830 crore, Oil and Natural Gas Corp. Ltd provided Rs1,796 crore and Indian Oil Corp. Ltd paid Rs1,100 crore, he said. Record-low interest rates and tax cuts are providing stimulus which policymakers estimate are worth at least 12% of the country‘s gross domestic product, or GDP. Economic growth may average around 8.6% over the next 10-15 years, UBS AG economist Philip Wyatt said on Tuesday. "The tax numbers indicate that the worst is behind us and all the leading indicators, including industrial production, suggest that non-farm GDP will gain further ground," said Sonal Varma, an economist at Nomura Securities Co. Ltd in Mumbai. Increased spending on consumer goods and automobiles has driven tax payments higher, the official said. Advance tax payments had declined 3.7% in the April-June period, he said. Finance minister Pranab Mukherjee had said on 19 September Indian policymakers need to keep borrowing costs at a record low to aid a nascent economic recovery. "At this point in time, I cannot accept dear money policy or credit curbs as it will have an adverse impact on growth." The Reserve Bank of India said the economy will grow 6% in the fiscal year to March, slower than the average 8.7% in the previous four years. - www.livemint.com

GLOBAL TAX WORTH A LOOK, SAYS BRITISH PM

With the G20 summit scheduled for next week, British Prime Minister Gordon Brown has suggested that the introduction of a global tax to reduce risky behaviour by banks was "worth looking at". Although, a greater cooperation between countries to stop excessive risk taking was required before such a tax could be considered, he added. France has proposed introducing a tax to be levied on every financial transaction, known as a Tobin Tax, so that with the billions of euros raised, economic development could be supported. Brown said such an idea was worth consideration, but global cooperation that is "cemented" and "action that is successful against tax havens" were required before taking any steps towards the measure. The prime minister, briefing journalists yesterday before leaving for the UN General Assembly in New York and then the Group of 20 summit in Pittsburgh, said the level of cooperation to prevent risky deals was still unsatisfactory."The first thing is to have the global coordination to involve every major country and we are not there yet," he added. Most commentators expect Britain and the United States to oppose such a tax, fearing its impact on their major financial centers. - www.business-standard.com

UNIFORM GST TO HELP MSMES: SURVEY

A uniform goods and services tax (GST) structure would help resolve most of the tax problems faced by the MSME sector, a survey said. "Introduction of a unified goods and services tax system would resolve most of the tax related challenges the industry faces," a joint survey of TiEDelhi and Deloitte said. GST, which is scheduled to be introduced from 1 April 2010, would do away with most of the indirect taxes like excise, service tax at the Centre and VAT in states and will be a move towards a unified indirect tax regime. The survey also pointed that entrepreneurs who want to set up micro, small and medium enterprises (MSME) often do not meet eligibility criteria to avail loans and most of them resort to self-financing. "Start ups and small businesses have very few options when it comes to raising capital," it said adding government initiatives take time to reach grass-root levels. The survey said entrepreneurs have to go through time consuming processes to obtain various approvals and permits. There are about 2.6 crore MSME units in the country employing about 7 crore people. While Deloitte is a global research firm, TiEDelhi is a promoter entrepreneurship through advice and guidance. - www.livemint.com

MUMBAI TDS MOPUP RISES 8% IN APR-SEPT

Tax deducted at source (TDS) collections in Mumbai for the April-September period have crossed last year‘s figure with income-tax collections showing an 8% increase, according to figures available till last week. Income-tax officials said if the economic recovery continues for the remaining part of the current fiscal year, TDS collections as well as regular tax collections could end up on a higher note. Mumbai‘s TDS collections, a major portion of which comes from salaries and contract payments, totalled Rs 21,510 crore till last week. The corresponding figure last year was Rs 19,888 crore. TDS typically constitutes a significant portion of corporate tax collection. Nearly 30-40% of the tax collected is usually by way of TDS. In the last fiscal year, 40% of the tax collected from Mumbai was from TDS. This was largely due to the special drive carried out last year by the TDS Commissionerate, for augmenting tax collection. It was during this time that the commissionerate for TDS sent a tax demand of Rs 900 crore on General Insurance Company and other non-life insurance companies, asking them to pay tax on commissions paid for reinsurance. Interestingly, TDS collection last year had its highs and lows. While it went up by 70% till September last year when the economy was on high gear, it slid sharply during the rest of the fiscal after the Lehman Brothers collapse triggered a worldwide slide in the credits market. It was still up by about 6% by December 2008, but despite efforts made by the Income-tax department to halt the fall, TDS collections fell by 10% towards the end of the fiscal year. The Mumbai income-tax department which was expected to collect Rs 150,000 crore, couldn‘t cross even Rs 120,000 crore. According to people connected with the income-tax department, actions carried out last year to bring under the tax net, defaulting companies and companies who wanted to stay out of the TDS net, has had a positive effect this year too. If the economy continues to tread the recovery path, TDS figures for the current fiscal could be still higher, officials said. - www.economictimes.indiatimes.com

LAB TESTING SERVICES ARE TAXABLE UNDER TECHNICAL TESTING AND ANALYSIS SERVICE

We are a publishing house. We have entered into an agreement with a UK-based company for providing online access of our books to our specified customers. The said company converts the books into digital format and uploads it on a server located outside India. Please confirm if service tax would be applicable on the fee payable by us to the company for this arrangement. The service provided by the UK company should be taxable under the category of development and supply of content service, which includes service provided in relation to development and supply of content for use in online information and database access or retrieval services. However, as the provider of services is located outside India, it would be relevant to examine the taxability of services under the rules prescribed for the taxability of import of services, under which the services provided by the UK company would be subject to service tax in India. We are a consultancy firm. Our parent company based in the US has assigned certain personnel to our office for specific projects. We are depositing service tax under the category of ‘manpower recruitment or supply services‘ on the payments made to the company for such personnel. Additionally, we are also reimbursing the rent paid by these assignees for their accommodation in India. Are we liable to pay service tax on these reimbursements? Service tax authorities have clarified vide Circular F No B1/ 6/ 2005 - TRU dated July 27, 2005, that service tax is to be charged on the full amount of consideration for the supply of manpower, whether full- or part-time. The value of taxable service includes recovery of staff costs from the recipient (salary and other contributions). Even if the staff costs are paid directly to the individual or if they are paid on behalf of the seconding entity, such costs can be considered as a part of the consideration paid by the service recipient to the service provider, and hence, form part of the value of taxable service. Since, the rent is paid by your office and is a component of the salary consideration payable to the assignees, the same would be considered as a part of consideration for the supply of manpower by the head office. Thus, the liability to deposit service tax would be on your company as a recipient of services under the category of manpower recruitment or supply services. We have entered into an agreement with one of our clients for provision of laboratory testing services. We understand that lab testing services provided in relation to humans are exempt from the applicability of service tax. Please confirm. Laboratory testing services are taxable under the taxable service category of technical testing and analysis service (TTAS). The scope of TTAS excludes any testing or analysis service provided in relation to human beings or animals. The laboratory tests carried out on humans for purposes like diagnosing or identifying disease as well as for preventing diseases and disorders have ben ecluded from the definition of TTAS. However, tests carried out for the purpose of clinical testing of drugs and formulations would be included under TTAS. Accordingly, laboratory testing services provided by you to your client should be exempt from service tax provided that such services are not in relation to any clinical trials. We run a skin clinic where we undertake cosmetic surgery. Recently these services have been brought under the ambit of service tax. Please confirm the same and also advice on the relevant time period within which we are required to take the service tax registration. The Finance Bill 2009 has sought to levy service tax on cosmetic and plastic surgery service. Service tax is applicable on such services from September 1, 2009. The provider of any taxable service is required to apply for service tax registration within 30 days from the date of introduction of a new taxable service category (subject to a threshold limit of Rs 9 lakh). Thus, you need to apply for service tax registration by September 30, 2009, under the taxable service category of cosmetic and plastic surgery services. Respondents are senior professionals at Ernst and Young. The replies do not constitute professional advice. Neither EY nor FE are liable for any action taken on the basis of these replies. - www.financialexpress.com

Income Tax Returns, of Taxpayers_PRESS NOTE_CBDT, Dated 25-Sep-2009

LAB TESTING SERVICES ARE TAXABLE UNDER TECHNICAL TESTING AND ANALYSIS SERVICE

We are a publishing house. We have entered into an agreement with a UK-based company for providing online access of our books to our specified customers. The said company converts the books into digital format and uploads it on a server located outside India. Please confirm if service tax would be applicable on the fee payable by us to the company for this arrangement. The service provided by the UK company should be taxable under the category of development and supply of content service, which includes service provided in relation to development and supply of content for use in online information and database access or retrieval services. However, as the provider of services is located outside India, it would be relevant to examine the taxability of services under the rules prescribed for the taxability of import of services, under which the services provided by the UK company would be subject to service tax in India. We are a consultancy firm. Our parent company based in the US has assigned certain personnel to our office for specific projects. We are depositing service tax under the category of ‘manpower recruitment or supply services‘ on the payments made to the company for such personnel. Additionally, we are also reimbursing the rent paid by these assignees for their accommodation in India. Are we liable to pay service tax on these reimbursements? Service tax authorities have clarified vide Circular F No B1/ 6/ 2005 - TRU dated July 27, 2005, that service tax is to be charged on the full amount of consideration for the supply of manpower, whether full- or part-time. The value of taxable service includes recovery of staff costs from the recipient (salary and other contributions). Even if the staff costs are paid directly to the individual or if they are paid on behalf of the seconding entity, such costs can be considered as a part of the consideration paid by the service recipient to the service provider, and hence, form part of the value of taxable service. Since, the rent is paid by your office and is a component of the salary consideration payable to the assignees, the same would be considered as a part of consideration for the supply of manpower by the head office. Thus, the liability to deposit service tax would be on your company as a recipient of services under the category of manpower recruitment or supply services. We have entered into an agreement with one of our clients for provision of laboratory testing services. We understand that lab testing services provided in relation to humans are exempt from the applicability of service tax. Please confirm. Laboratory testing services are taxable under the taxable service category of technical testing and analysis service (TTAS). The scope of TTAS excludes any testing or analysis service provided in relation to human beings or animals. The laboratory tests carried out on humans for purposes like diagnosing or identifying disease as well as for preventing diseases and disorders have ben ecluded from the definition of TTAS. However, tests carried out for the purpose of clinical testing of drugs and formulations would be included under TTAS. Accordingly, laboratory testing services provided by you to your client should be exempt from service tax provided that such services are not in relation to any clinical trials. We run a skin clinic where we undertake cosmetic surgery. Recently these services have been brought under the ambit of service tax. Please confirm the same and also advice on the relevant time period within which we are required to take the service tax registration. The Finance Bill 2009 has sought to levy service tax on cosmetic and plastic surgery service. Service tax is applicable on such services from September 1, 2009. The provider of any taxable service is required to apply for service tax registration within 30 days from the date of introduction of a new taxable service category (subject to a threshold limit of Rs 9 lakh). Thus, you need to apply for service tax registration by September 30, 2009, under the taxable service category of cosmetic and plastic surgery services. Respondents are senior professionals at Ernst and Young. The replies do not constitute professional advice. Neither EY nor FE are liable for any action taken on the basis of these replies. - www.financialexpress.com

MUMBAI TDS MOPUP RISES 8% IN APR-SEPT

Tax deducted at source (TDS) collections in Mumbai for the April-September period have crossed last year’s figure with income-tax collections showing an 8% increase, according to figures available till last week. Income-tax officials said if the economic recovery continues for the remaining part of the current fiscal year, TDS collections as well as regular tax collections could end up on a higher note. Mumbai’s TDS collections, a major portion of which comes from salaries and contract payments, totalled Rs 21,510 crore till last week. The corresponding figure last year was Rs 19,888 crore. TDS typically constitutes a significant portion of corporate tax collection. Nearly 30-40% of the tax collected is usually by way of TDS. In the last fiscal year, 40% of the tax collected from Mumbai was from TDS. This was largely due to the special drive carried out last year by the TDS Commissionerate, for augmenting tax collection. It was during this time that the commissionerate for TDS sent a tax demand of Rs 900 crore on General Insurance Company and other non-life insurance companies, asking them to pay tax on commissions paid for reinsurance. Interestingly, TDS collection last year had its highs and lows. While it went up by 70% till September last year when the economy was on high gear, it slid sharply during the rest of the fiscal after the Lehman Brothers collapse triggered a worldwide slide in the credits market. It was still up by about 6% by December 2008, but despite efforts made by the Income-tax department to halt the fall, TDS collections fell by 10% towards the end of the fiscal year. The Mumbai income-tax department which was expected to collect Rs 150,000 crore, couldn’t cross even Rs 120,000 crore. According to people connected with the income-tax department, actions carried out last year to bring under the tax net, defaulting companies and companies who wanted to stay out of the TDS net, has had a positive effect this year too. If the economy continues to tread the recovery path, TDS figures for the current fiscal could be still higher, officials said. - www.economictimes.indiatimes.com

UNIFORM GST TO HELP MSMES: SURVEY

A uniform goods and services tax (GST) structure would help resolve most of the tax problems faced by the MSME sector, a survey said. “Introduction of a unified goods and services tax system would resolve most of the tax related challenges the industry faces,� a joint survey of TiEDelhi and Deloitte said. GST, which is scheduled to be introduced from 1 April 2010, would do away with most of the indirect taxes like excise, service tax at the Centre and VAT in states and will be a move towards a unified indirect tax regime. The survey also pointed that entrepreneurs who want to set up micro, small and medium enterprises (MSME) often do not meet eligibility criteria to avail loans and most of them resort to self-financing. “Start ups and small businesses have very few options when it comes to raising capital,� it said adding government initiatives take time to reach grass-root levels. The survey said entrepreneurs have to go through time consuming processes to obtain various approvals and permits. There are about 2.6 crore MSME units in the country employing about 7 crore people. While Deloitte is a global research firm, TiEDelhi is a promoter entrepreneurship through advice and guidance. - www.livemint.com

GLOBAL TAX WORTH A LOOK, SAYS BRITISH PM

With the G20 summit scheduled for next week, British Prime Minister Gordon Brown has suggested that the introduction of a global tax to reduce risky behaviour by banks was "worth looking at". Although, a greater cooperation between countries to stop excessive risk taking was required before such a tax could be considered, he added. France has proposed introducing a tax to be levied on every financial transaction, known as a Tobin Tax, so that with the billions of euros raised, economic development could be supported. Brown said such an idea was worth consideration, but global cooperation that is "cemented" and "action that is successful against tax havens" were required before taking any steps towards the measure. The prime minister, briefing journalists yesterday before leaving for the UN General Assembly in New York and then the Group of 20 summit in Pittsburgh, said the level of cooperation to prevent risky deals was still unsatisfactory. "The first thing is to have the global coordination to involve every major country and we are not there yet," he added. Most commentators expect Britain and the United States to oppose such a tax, fearing its impact on their major financial centers. - www.business-standard.com

ADVANCE TAX COLLECTIONS UP THREEFOLD IN SECOND QUARTER

New Delhi: Taxes paid by Indian companies more than doubled in the three months through September, suggesting growth in Asia’s third biggest economy may be strengthening. Advance taxes paid by local companies rose to Rs44,010 crore in the July-September quarter from Rs20,720 crore in the previous three months and 14.7% more than the same quarter last year, said a finance ministry official who declined to be identified. Companies make advance payments once every three months, based on their estimates of income for the quarter. Reliance Industries Ltd, the country’s most valuable company, paid Rs1,160 crore in advance taxes in the quarter to 30 September, 69% more than the April-June period, the finance ministry official told reporters in New Delhi on Tuesday. State Bank of India paid Rs1,830 crore, Oil and Natural Gas Corp. Ltd provided Rs1,796 crore and Indian Oil Corp. Ltd paid Rs1,100 crore, he said. Record-low interest rates and tax cuts are providing stimulus which policymakers estimate are worth at least 12% of the country’s gross domestic product, or GDP. Economic growth may average around 8.6% over the next 10-15 years, UBS AG economist Philip Wyatt said on Tuesday. “The tax numbers indicate that the worst is behind us and all the leading indicators, including industrial production, suggest that non-farm GDP will gain further ground,� said Sonal Varma, an economist at Nomura Securities Co. Ltd in Mumbai. Increased spending on consumer goods and automobiles has driven tax payments higher, the official said. Advance tax payments had declined 3.7% in the April-June period, he said. Finance minister Pranab Mukherjee had said on 19 September Indian policymakers need to keep borrowing costs at a record low to aid a nascent economic recovery. “At this point in time, I cannot accept dear money policy or credit curbs as it will have an adverse impact on growth.� The Reserve Bank of India said the economy will grow 6% in the fiscal year to March, slower than the average 8.7% in the previous four years. – www.livemint.com

FM TO DISCUSS

Finance Minister Pranab Mukherjee will meet leading industry chambers here on October 9 to discuss issues arising out of the proposed new direct tax regime. The three industry bodies, CII, FICCI and Assocham are expected to take a common stand on the different contentious issues that will confront the businesses once the new direct tax code comes into effect. It is proposed in the draft code that minimum alternate tax (MAT) of 2 per cent would apply on the gross asset value of a company instead of current levy of 15 per cent on book profits. The industry is believed to be opposed to this draft provision on the ground that it would have to pay MAT from the day it acquires both movable and immovable assets. Last month, the government released the direct tax code for public discourse and when approved by parliament it would replace the Income Tax Act of 1961 and other related laws. The draft tax code also suggests abolishing the controversial securities transaction tax but seeks to reintroduce long-term capital gains tax. – www.financialexpress.com

AUDIT WATCHDOGS MAY GET MORE SERVICE SWAY

The government is considering a proposal to authorise the country’s three statutorily recognised institutes in the fields of accounting, company secretaryship and cost accounting to expand their ambit of functioning by providing services in all three areas. The proposal, however, is being opposed by the regulators themselves as many feel that it would lead to the end of specialisation and loss of functional and regulatory autonomy, a government official, who did not want to be identified, said. The proposal, mooted by the ministry of corporate affairs, is now being deliberated upon by professional bodies including the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) and Institute of Cost and Works Accountants of India (ICWAI). The government, which is mulling key amendments relating to the work of all the three institutes, felt the need to club their regulatory functions so as to give them greater powers as well as make them more accountable in cases of any default in service by them, the official pointed out. This assumes relevance in the light of the fraudulent activities carried out in Satyam (now Mahindra Satyam) where professional lapses took place at various levels. ICAI, ICSI and ICWAI are institutes that serve as parent organs for the chartered accountants, company secretaries and cost accountants, respectively, and prepare functional as well as regulatory guidelines pertaining to their own field of work. All three institutes have been formed under separate Acts of Parliament, with their registered members entrusted to do specific work that is exclusive to them. To give the proposal a final shape and get it implemented, the government will have to go through a process of amendment of the Acts under which the institutes have been established. Even as the proposal is at a stage of discussion, the ICAI and the ICSI have voiced their opposition to the said move. They have said the qualification and regulatory function presently exercised by a single institute should not be separated

INSURANCE CLAIMS MAY BE TAXABLE UNDER NEW CODE

The insurance claims paid to policy holders in the event of death or disability will be subject to payment of income tax if the new Direct Taxes Code proposals are implemented. The Code proposes that contributions by the insured are subject to the EET method of taxation of savings. This means that the sum received under a life insurance policy, including any bonus, is taxed. Only a pure life insurance policy is exempted from tax. In a pure life insurance policy, the policy holder receives money only when death occurs. Life insurance companies are perturbed that the tax proposal could hit their business. Life insurers are taking up the issue with the government through the Life Insurance Council. According to an insurance company official, the council is sending its suggestions to the government and the regulator. "Even if you are in the lower tax bracket, when you get the sum assured, it will be a lumpsum amount. This would catapult you to a higher tax bracket and you will pay higher taxes," said Mr Kamalji Sahay, CEO, Star Union Dai-ichi Life Insurance. Only term insurance policies would be exempted. Both ULIPs and traditional products would be taxed. The return would be taxed even in case of disability or death, said Mr Mr V. Srinivasan, Chief Financial Officer, Bharti AXA Life Insurance. The Direct Taxes Code has a section which says that maturity proceeds of an insurance policy shall be exempt only if the premium does not exceed 5 per cent of the capital sum assured. This means that for a premium of Rs 10,000, the sum assured will be exempted only if it is greater than Rs 2 lakh. However, most of the products sold by companies do not match this criteria, Mr Srinivasan said. There is also ambiguity on whether only the returns will be taxed and not the principal. It is not clear whether the tax would be applied on the basis of the real value of money invested or on the nominal value, Mr S.B. Mathur, Secretary-General, Life Insurance Council, said. For example, a person buying a traditional endowment plan could get a sum assured of Rs 5 lakh by paying a premium of Rs 4 lakh. It is not clear whether the policy holder would be taxed on the difference (Rs 1 lakh) or on the total sum assured of Rs 5 lakh that he receives at the end of the policy tenure. - www.thehindubusinessline.com

SOFTWARE BUGS DELAY INCOME-TAX REFUNDS

Even as income-tax payers grapple with non-acceptance of their returns, its surely not a good time to expect refunds. Refunds across the country will be enormously delayed as the software at the new Centralised Processing Centre (CPC) of the I-T department is yet to be rid of bugs. The net result is that processing tax returns and refunds of the assessment year 2008-09 may not be completed before March 2010. Though the software is in place, the system is yet to get on to a complete working module. Its in the nascent stage and once the software gets on track, it speed up the process. The software will be fully operational by next year. Tax returns with errors are being returned. With delay in processing of returns, it impact refunds too, explained IT officials. After filing returns online, a tax payer/CA/tax consultant will have to download the acknowledgement and send it to CPC through ordinary post. We have been returning acknowledgements sent through couriers and Speed Posts to the assesses. Were also rejecting printouts of low quality where details cannot be read and information is wrong, officials added. – www.economictimes.indiatimes.com

DIRECT TAX CODE NEEDS OVERHAUL: EXPERTS

A raft of tax experts and professional bodies including chambers of commerce across the country thinks virtually every line of the new direct tax code may have to be rewritten to shield domestic companies and their operations, both in India and overseas. The new code will have an effect on India IT companies, especially those with business operations abroad, said Himanshu Patel, senior tax expert with Deloitte, at a meeting organised by the Eastern Regional Council of the Institute of Company Secretaries of India (ICSI- EIRC). According to Mr Patel, the transfer pricing mechanism provisions will have a negative impact on international transactions unless these are revised sufficiently to deal with some of the crucial issues like period of agreement and threshold equity limits. Stock market stalwarts like Rakesh Jhunjhunwala and Shankar Sharma too have expressed their fear about outflows of foreign funds by the end of the current financial year if the new Tax Code sought to be in place by April 2011 is not revised, a tax expert pointed out. ICSI-EIRC chairman Ashok Pareek thinks that the draft direct tax code, which is doing the rounds across the length and breadth of the country, is likely to take time before it is finalised. Views and comments from various sections will have to be taken into account by the ministry before they can introduce the final version in Parliament, he added. The code has, for the first time, introduced the advance pricing agreement in which the definition of associated enterprises has been made more stringent by lowering some of the important threshold limits currently existing under the scope of transfer pricing regulations. While voting power thresholds have been lowered to 10% from 26% earlier, loan threshold has been reduced to 26% compared to 51% prescribed earlier to qualify entities as associated enterprises. Indeed, the previous threshold limits on shareholding, loan, directorship etc, Mr Patel explained, was linked to a reasonable control over a business entity. For instance, an equity holding of 26% gives the shareholder power to block special resolutions. A 10% holding in a foreign entity may not give a shareholder even minimum control over its activities. To consider such an entity as an associated enterprise for the purpose of taxation under transfer pricing regulations, is certainly unfair, he said. - www.economictimes.indiatimes.com

STATES AGREE ON DUAL GST RATES

Some SMEs will stay outside the ambit of GST. States have finally reached a consensus on having two basic rates under the Goods and Services Tax (GST), slated to be rolled out on April 1, 2010. There will be one standard rate of taxation and another low rate of taxation for essential commodities. "A consensus has been reached between state finance ministers regarding the two basic rates of taxation. Some items will also be exempted from the tax and there will be another rate of tax for precious metals like gold and silver," said Asim Dasgupta, chairman of the empowered committee of state finance ministers. He also added that some small and medium enterprises would stay outside the ambit of GST. The exact rates have not been decided yet. Dasgupta also said the Centre was expected to have a good deal of conformity to the GST structure. Decisions have also been taken to set up a joint working group to decide on a framework on constitutional amendment for implementing GST and a model legislation for the proposed tax. "The working group will be set up immediately and the report regarding constitutional amendment will be submitted in a month. It is a small amendment to empower states to levy taxes," Dasgupta added. The draft legislation was expected to be ready in two months. Dasgupta said this would give the government time to take feedback from stakeholders and amend the legislative structure accordingly. The joint working group will include representatives from the state and Centre, as well as the law ministry and the Central Board of Direct Taxes. At a separate meeting, finance ministers of BJP-ruled states discussed the introduction of GST. Former Union finance minister Yashwant Sinha, who attended the meeting, told Business Standard that the states had some concerns whether the introduction of GST would lead to revenue loss and rising prices of essential commodities. Besides, there were apprehensions about the new regime impacting the taxation powers of the state. "These concerns are state-wise," Sinha said, adding that even Congress-ruled Haryana and UPA-ruled Tamil Nadu have expressed concerns over the proposed tax. On whether the April 2010 deadline was achievable, Sinha said: "Consensus among states was more important than the date of implementation." He said the BJP-ruled states decided to take up their concerns with the empowered committee and the Union government. Sinha said GST was more complicated than the value added tax (VAT), since the latter involved taxation by only the state governments. Dasgupta has called for a meeting with finance ministry officials on September 22 to discuss the rate of GST. On being asked whether the GST rollout was possible by the end of the current financial year, Dasgupta said: "It is very possible to roll out the tax structure in 3-4 months, but we don‘t have a day to lose." - www.business-standard.com

ADVANCE TAX NUMBERS SUGGEST PRESSURE ON CEMENT COS

UltraTech Cement, an Aditya Birla Group company, has skipped advance tax payment in the second quarter of this fiscal, fuelling speculation that the earnings of cement companies could come under pressure due to possible oversupply. The company had paid Rs 190 crore in the same period last year. However, ACC paid higher advance tax of Rs 150 crore (Rs 42 crore). Hindalco Industries of the Aditya Birla Group paid Rs 70 crore as advance tax, down from Rs 190 crore paid last year. Grasim Industries, on the other hand, coughed up more than thrice as much at Rs 250 crore (Rs 75 crore). Indian Oil emerged the second highest tax payer after SBI by paying Rs 1,100 crore, though the oil major did not pay advance tax in the quarter last year when the crude price crisis was at its peak. "It is a decision taken by individual companies which quarter they have to pay up the maximum tax liability. It also depends on the liquidity and capital expenditure, besides the future outlook," analysts say. An analysis of advance tax paid by Mumbai-based companies shows a revenue gain of Rs 4,343 crore to the Centre.- www.thehindubusinessline.com

ADVANCE TAX COLLECTIONS HEALTHY

The Indian economy seems to be on the mend with advance tax payments by banks, oil and auto companies showing a healthy rise. While the final figures are yet to be computed,initial trends suggest that advance tax collections in the second instalment will top the Rs 40,000 crore collected in September last year. In Mumbai,which accounts for 40 per cent of the country‘s direct tax collections,advance tax receipts are expected to rise by 20 per cent. State Bank of India has paid Rs 1,838 crore as advance tax in the second tranche against Rs 1,560 crore a year ago. In the Tata group,Tata Steel‘s advance tax outgo rose by nearly 74 per cent to Rs 400 crore in this instalment. - www.financialexpress.com

EXCISE DUTY MOP-UP SOARS 22.5% IN AUGUST

In the clearest indication so far that the much-talked-about green shoots aren‘t an optical illusion, excise tax collections in August were up 22.5% over the previous month, though still a touch lower than the figure for August 2008. Given the fact that excise duties reflect what‘s happening to all kinds of manufactured goods, this is arguably a more broad-based indicator of industry recovering than the index of industrial production (IIP). Sources told TOI that central excise duty collections in August were Rs 8,979 crore, about 8.8% below the Rs 9,846 crore collected in the same month last year. What makes that good news is the fact that July collections of Rs 7,332 crore this year were 28.5% lower than last July‘s mop up