PARLIAMENT PANEL SEEKS INFO ON TAX EVASION BY IPL TEAMS [15 July 2010]

A Parliamentary panel today sought details from the government on investigations into the alleged tax evasion by the Board of Control for Cricket in India (BCCI) and Indian Premier League (IPL) franchisees, owners of the high-profile Twenty-20 cricket teams. The Parliamentary Standing Committee on Finance, which met here under the chairmanship of BJP leader Yashwant Sinha, asked for information from the finance ministry on the progress of different probes into the alleged income and service tax evasion and violation of Foreign Exchange Management Act (FEMA), a high-level source said. "The government was pulled up as committee members asked for certain clarifications from Revenue Secretary...", he added. The questions were related to the amount of funds collected by India's cricket board BCCI, including from IPL matches, the source of funds and the foreign exchange involved. The alleged evasion of the service tax for marketing and brand-building by IPL franchisees also came up for discussion. He said the committee would make further enquiries in the next meetings. Among others, the meeting was attended by MPs including S S Ahluwalia (BJP), Raashid Alvi (Congress) and Bhartruhari Mahtab (BJD). Interim IPL Commissioner Chirayu Amin was was asked to be present in the meeting. Different wings of the finance ministry are probing the IPL affairs since eruption of a controversy in April over running of the annual money-spinning cricket tournament, which has a fair amount of glamour and entertainment. The row and the face-off between a former Union minister Shashi Tharoor and suspended IPL Commissioner Lalit Modi led to government ordering enquiries by its different departments into the affairs of the IPL and the teams owned by business houses and film stars. In all, IPL has 10 franchisees of which eight are functional. These include the Rajasthan Royals, Kolkata Knight Riders, Chennai Superkings and King's XI Punjab. Since the commercialisation of cricket, particularly after the launch of the IPL series, the tax authorities do not consider BCCI as sports promotion body entitled for exemptions. - www.business-standard.com

I-T STAFF TO STRIKE WORK TODAY [15 July 2010]

The employees of the Income-Tax Department will strike work on Thursday to stress the various demands including filling up vacancy and stop outsourcing at the Central Processing centre in Bangalore. The two major employees associations Income-Tax Gazetted Officers Association and Income-Tax Employees Federation will participate in the strike. Around 42,000 employees and 8,000 officers are expected to participate in the all-India strike, said Mr Rajesh Menon, Joint convenor of the Income-Tax Employees Federation and Income-tax Gazetted Officers Association. Almost 80 per cent of the work done by the private vendors requires rectification, thus increasing the work of the employees, he said. They are also demanding the filling up of the vacant posts at the Assistant Commissioner, Joint Commissioner and Additional Commissioner level. Of the 2,192 posts of Assistant Commissioners, almost 700 are vacant. Of the 1,300 posts of Joint and Additional Commissioners, 500 are lying vacant. In the JCIT (joint commissioner income tax) cadre, about 500 are lying vacant and sanctioned employee strength was 1,250. This will adversely affecting the collection of revenue, said Mr Menon. "Instead of reflecting on its failure to hold promotion as per the prescribed model, CBDT (Central Board of Direct Taxes) has warned strict action, as per rules, against the officers and employees, participating in the strike," said Mr Menon. Even, the meeting with the Chairman, CBDT held in June elicited only a lukewarm response and no concrete solution was offered, he added. The employees strike comes at a time when the Central Government has set an ambitious tax collection target of Rs 4,30,000 crore for this fiscal against Rs 3,80,000 crore achieved in last fiscal. Such an ambitious growth cannot be achieved with such vitiated atmosphere in the department, said an employee. Promotion for the Assistant Commissioner (IT) was last effected in October 2008. Civil list of IRS (Indian Revenue Service) officers was last published in 2006 in a sinister effort to grant undue advantage to direct recruits over regular employee, he added. - www.thehindubusinessline.com

I-T STAFF TO BOYCOTT SEARCH, SEIZURE OPERATIONS FROM JULY 20 [16 July 2010]

The employees of the Income-Tax Department plan to boycott all search and seizure operations as well as survey operations from July 20 to secure their charter of demands, said Mr Ashok B. Salunkhe, All-India Secretary General of the Income Tax Employees Federation. Over 50,000 employees and officers of the Income-Tax Department had gone on a one-day token strike on Thursday. The strike was fully successful. Officers and employees across the country participated in the one-day token strike, affecting the operations of the Income-Tax Department, said Mr Salunkhe. "We have been staging dharnas and protests from June 7. Today's strike is the culmination of the first phase of our protests. From July 20, we will start boycotting all search and seizure operations. If our demands are not met, we will even consider going on an indefinite strike," Mr Salunkhe said. The two major employees associations, Income Tax Gazetted Officers Association (ITGOA) and Income Tax Employees Federation (ITEF), participated in the strike today. The employees are protesting the large-scale outsourcing of operations in the Central Processing centre at Bangalore. According to them, almost 80 per cent of the work is outsourced to the private vendors. They allege that most of the work done by these vendors are error ridden which needs to be rectified by the employees. They are also demanding the filling up of the vacant posts at Assistant Commissioner, Joint Commissioner and Additional Commissioner level. They are also seeking equal treatment for officers who are promoted from within the ranks and those recruited directly. Of the 2,192 posts of Assistant Commissioners, almost 700 are vacant. Of the 1,300 posts of Joint and Additional Commissioners, 500 are lying vacant, said Mr Rajesh Menon, Joint convenor of ITEF and ITGOA. - www.thehindubusinessline.com

TAX HAVENS TURN A BIG DRAW FOR INVESTMENTS FROM INDIA [17 July 2010]

Outbound foreign direct investment by Indian companies in tax havens such as the British Virgin Islands and the Channel Islands has seen a quantum jump in FY2010 compared with the previous financial year. India's foreign direct investment (FDI) in the British Virgin Islands (BVI), one of the largest offshore jurisdictions in the world, jumped 102 per cent to $542 million in FY2010 ($268 million in FY2009), according to Reserve Bank of India data. In the case of the Channel Islands, where no tax is payable by corporations or individuals on foreign income and gains, and non-residents are not taxed on local income, Indian investments soared to $516 million in FY2010 against just $44 million in the previous year. While BVI is a British Overseas Territory located in the Caribbean, the Channel Islands are part of British Crown Dependencies located in the English Channel.
Holding cos
Indian companies, say taxation experts, are setting up holding companies/special purpose vehicles in these islands for acquiring companies in the US and Europe. The reason: Dividends received by companies with residency in these islands attract either very low or zero tax. Another plus factor for routing FDI via these islands is that they have readymade professional support services - lawyers and accountants - and banking regulations that are supportive of investments. "Indian multinational companies are floating holding companies/special purpose vehicles in tax havens to raise capital for making acquisitions in the US and Europe," said Mr Sudhir Kapadia, Tax Market Leader, Ernst & Young. While Indian FDI in the BVI and the Channel Islands has gone up substantially, it is down 36.5 per cent to $1.31 billion ($2.07 billion in FY2009) in Mauritius. The slackening of investment in Mauritius comes follows the Indian revenue authorities raising the vigil on money flowing from India to Mauritius and vice-versa. In fact, the Income-Tax Department is believed to have deputed officers of the rank of Additional Commissioner to Mauritius and Singapore to scrutinise fund flows with India connections.
To buy coal assets
Indian FDI in Indonesia, a favourite hunting ground for Indian companies to buy coal mining assets, has increased to $265 million ($23 million). Except for the BVI, Channel Islands and Indonesia, Indian investment in countries such as Singapore ($3.65 billion in FY2010 against $3.74 billion in FY2009), Mauritius ($1.31 billion against $2.07 billion), the Netherlands ($737 million against $2.78 billion), the US ($667 million against $925 million), the UAE ($484 million against $599 million), Cyprus ($436 million against $2.28 billion) and the UK ($219 million against $343 million) were all lower in FY2010. According to the RBI, during FY2010, overseas investment financed through loans registered a growth of 19.1 per cent over the previous year whereas the investment financed through equity decelerated sharply and was placed at almost half the level of 2008-09. A break-up of the overseas investment pattern in FY2010 shows that equity and loan financing accounted for 64 per cent and 36 per cent respectively of the total overseas investment of $10.30 billion. In FY2009, equity and loan financing accounted for 81 per cent and 19 per cent respectively of the total overseas investment of $16.22 billion. A sectoral break-up of India Inc's overseas investment pattern in FY2010 shows that 44 per cent (or $4.44 billion) of total investments went into the manufacturing sector; 28 per cent (or $2.89 billion) into financial, insurance, real estate and business services; 11 per cent (or 1.17 billion) into the wholesale and retail trade and restaurants and hotels; 7 per cent (or $722 million) into construction; and 10 per cent (or $1.07 billion) into others. - www.thehindubusinessline.com

COS MAY HAVE TO SPLIT CEO & MD ROLES- SEBI [19 July 2010]

A committee constituted by India's securities market regulator, the Securities and Exchange Board of India, or Sebi, is considering a proposal to separate the role of chairman and managing director (MD) or CEO of listed companies to prevent concentration of management powers in the hands of one individual. Several firms, especially state-owned enterprises, have the same person holding the post of both chairman as well as MD. The issue has been discussed by the Primary Market Advisory Committee, or PMAC, formed by Sebi, but the proposal is still at an early stage. Although industry and legal experts have backed the proposal, they caution that translating it into rules will lead to a major overhaul of the board structure of most listed companies in India. "A separate chairman will be a more effective channel for the board to express its views on the management, and also provide proper guidance to the CEO," says Akil Hirani, managing partner, of law firm Majmudar & Co. "Separating the role will help create an effective feedback mechanism for the CEO. A separate chairman will also help the board more effectively fulfil its regulatory requirements," he said. In countries, like the US, UK and France, the role of a chairman is distinct from that of a CEO. However, in India, it's up to companies to decide on whether the role needs to be separated. According to rules framed by Sebi, if the chairman of a board is a non-executive director, at least one-third of the board should comprise independent directors. If he is an executive director, at least half the board should comprise independent directors. Shailesh Haribhakti, chairman, BDO India, too, favours segregating the roles of chairman and MD or CEO. "Otherwise, it's like an individual evaluating himself. Separating the roles will bring in more accountability," Mr Haribhakti said. According to the voluntary guidelines on corporate governance issued by the Ministry of Corporate Affairs for public companies and large private firms, there should be a clear demarcation of roles and responsibilities of the chairman of the board and that of the MD or CEO to ensure balance of power. A report by the Organisation for Economic Co-operation and Development (OECD) mentions that when the roles of the CEO and the chair are not separated, it is important in larger and complex companies to explain the measures that have been taken to avoid conflict of interests and to ensure the integrity of the chairman's function. Suhail Nathani, partner, Economic Laws Practice, feels that there could be a lot of resistance initially to the proposal to separate the role of a chairman and MD or CEO. Some family-owned companies could even circumvent the rule by giving one of the two posts to a member of the family. "But in the long term, it will help all stakeholders of the company," says Mr Nathani. Mr Hirani said that the segregation of roles may not be a solution to address all corporate governance issues, given the peculiarities of the Indian corporate landscape. Most of them are owned or controlled by business families, and if role demarcation becomes the norm, a fallout could be the need for an overhaul of the board structure of most companies. There have also been suggestions to consider an independent body to appoint independent directors on the board of companies. However, this could not be taken up by PMAC, since it doesn't fall under the purview of the capital market regulator. Mr Hirani said having 50% of the board as independent directors doesn't materially improve the quality of corporate governance, unless the appointment of the independent directors is transparent. - www.economictimes.indiatimes.com

DTC, GST-RELATED BILLS IN UPCOMING HOUSE SESSION [21 July 2010]

The Centre looks all set to bring the direct taxes code bill and the constitutional amendments required to roll out the goods and services tax in the forthcoming Monsoon session of the Parliament beginning next week. "It is our expectation that both the constitutional amendment bill and DTC (direct taxes code) Bill would be introduced in the Monsoon session," revenue secretary Sunil Mitra told reporters on the sidelines of a CII seminar. Union finance minister Pranab Mukherjee is scheduled to meet state finance ministers on Wednesday to discuss the constitutional amendments needed for rolling out the GST. The new tax will replace the excise duty and service tax at the central level and value-added tax at the state level and some other local levies, thereby helping create a pan-India market for goods and services. The meeting is crucial since implementation of GST has already been delayed by a year. It is now slated to be implemented from April 1, 2011. But for that, a consensus between the Centre and the states on the key changes in the tax structure and the constitution is essential. If the differences persist it will be an uphill task to implement the new tax by the new deadline also as the passage of constitutional amendment and the subsequently GST Bill will take time. "On GST, we are having the meeting of empowered committee tomorrow. The basic thrust is the IT system. Nandan Nilekani (the UIDAI chairman) will make a presentation tomorrow. And we need key decision on a common portal on PAN-based registration," Mr Mitra said. Mr Mukherjee is expected to discuss the constitutional amendments required to implement GST with the state finance ministers. Union finance minister has also met chief ministers of most states to impress upon them the need to urgently implement the GST. The empowered committee will also hold deliberations on the compensation package for the states for any possible revenue loss when the shift to GST happens. The centre is looking to make changes in the existing lists in the constitution - Union List, State List and Concurrent List - to pave the way for implementation of GST. The constitution has to be amended to allow the centre to tax goods at retail level and states to tax services. Besides, changes are also required to be made to allow for imposition of GST on imports. Currently, while the centre can only levy excise duty on goods at factory gate, the states do not have powers to levy tax on services. Earlier, the government had contemplated introducing a new list to define to the Fourth List concept was dropped later on. - www.economictimes.indiatimes.com

ACCEPT OUR RATES TO GET CASHLESS PLAN: INSURERS TO HOSPITALS [16 July 2010]

Locked in a battle with big healthcare firms over censoring cashless health insurance claims, state-run insurers on Thursday asserted that the facility would be extended only to those hospitals that agree to their rates for medical expenses. "The purpose of working out such package rates and stabilising the hospitalisation costs, will benefit the insured in many ways," the four state-run general insurance companies -- National Insurance Co, New India Assurance Co, Oriental Insurance Co and United India Insurance Co -- said in a joint public notice. Presumably hurt on their balance sheets by the allegedly inflated bills for medical costs of people covered by cashless mediclaim facilities, these insurers have pruned the list of hospitals in four large cities for providing this facility with effect from this month. The selected list of hospitals in Delhi and National Capital Region, Mumbai, Chennai and Bangalore, does not include big chains like Fortis and Max Healthcare and was prepared on the basis of those accepting rate packages prepared by the insurance firms for medical procedures and hospitalisation costs. While the insurers' move has been vehemently opposed by large hospitals, the general public has also been caused inconvenience as settlement claims for many of them were refused at the hospitals not on the preferred list for such a facility. A conciliatory meeting was arranged between the insurers and the hospitals in Mumbai on July 13, after which the insurance firms agreed to work upon expanding the list of approved hospitals for cashless facility. In today's statement, the four public sector insurers that together command nearly 65-70 per cent health insurance market share, however, made it clear that only those hospitals would be included in the list that adhere to its conditions on medical costs. "We along with some TPAs (Third Party Administrators), worked out package rates for some of the procedures/ hospitalisation expenses, which are commonly claimed under our health insurance policies," the statement said. Having offered these rate packages to various hospitals over a period of several months, those agreeing to the offer were included in a "Preferred Provider Network", or a network of hospitals where cashless mediclaim facilities would be available, the insurers said. For treatment at non-PPN hospitals, the policy holders would need to seek reimbursement of expenses later. Under cashless facility, the policyholders do not need to first pay the hospitals and later claim the expenses. Instead the insured sum gets deducted from the medical bills in the very first place. With effect from July 1, the PPN model was made operational in Mumbai (74 hospitals), Delhi NCR (131 hospitals), Chennai (65) and Bangalore (58). The insurers said that "many more hospitals have evinced interest in joining our PPN and we would be including them too." The insurers have also agreed to work with corporate hospitals and other stakeholders to devise a structure for expanding the PPN. The four state-run companies also made it clear that their move to restrict cashless facility to approved hospitals would bring down the costs for the insured. "Lower cost of every hospitalisation will leave a larger balance in the sum insured in the policy for future hospitalisation within the policy period." "Lower cost will also reduce loading on policy premium at the time of renewal," they said, while adding that their step was "in the interest of all health insurance policy holders." - www.economictimes.indiatimes.com

FILING RETURNS MADE EASY FOR BULK I-T ASSESSES [17 July 2010]

The Office of the Chief Commissioner of Income-Tax, Thiruvananthapuram, has made special arrangements to collect returns in bulk from the employees of major institutions. The Vikram Sarabhai Space Centre (VSSC) and Indian Railways are among the list of institutions expected to file returns in bulk, according to Mr S. Ravi, Income-Tax Commissioner, Thiruvananthapuram.
LAST DAY
Speaking to newspersons here on Friday, Mr Ravi said that any institution that files in more than a hundred returns is entitled to seek this facility from the department. Mr Ravi requested tax payers to file the returns as early as possible to avoid the final rush. The last day prescribed for the filing of individual returns for the year 2009-10 is July 31. Individual assessees may take maximum benefit of the e-filing system for filing their income-tax returns. The pay-up window is available on the link provided on the department Web site www.incometaxindiaefiling.gov.in that enables faster refunds, too. There was also the convenience of doing the mandatory filing within the comforts of home or office without having to present oneself at the Income-Tax office and waiting in the queue.
SPECAL COUNTERS
In any case, Mr Ravi said the department would operate special counters at the city office from July 28 to 31 during working hours to deal with the usual last-minute rush. Points to be noted while filing the returns include correctly entering the PAN and filling up various columns in the form; and ensuring that the deductions claimed are exact. Claims relating to reliefs under sections 89, 90 and 91, if applicable, should be correctly indicated.
QUERIES
For queries, the following officers could be contacted: Mr K.V. Ananthanarayanan (098446508855); Mr Ben Mathew Varkery (09447475655); Mr K. J. Joseph (09447124332); Mr Abdul Hakeem (09446292629); Mr Bhaskaran Nair (09447412416) and Ms R. Dolly (09746597060). The Thiruvananthapuram circle of the department had 1.42 lakh individual income-tax assessees. - www.thehindubusinessline.com

NEW I-T COMMISSIONER FOR MANGALORE [17 July 2010]

Dr B.S.N. Prasad has taken charge as the new Commissioner of Income Tax for Mangalore. An officer of 1989 batch of Indian Revenue Service, Dr Prasad was earlier serving as the Commissioner of Income Tax (Appeals) in Mangalore. He has served in various capacities in the I-T department in Hubli, Nagpur and Bangalore. The Income Tax commissionerate in Mangalore has jurisdiction over Mangalore, Udupi, Puttur and Karwar offices, and collects nearly Rs 2,000 crore of revenue. - www.thehindubusinessline.com

DOMESTIC COMPANIES SEEKING CCI PROTECTION AGAINST MNCs [19 July 2010]

Alleging that multinationals are gradually eating up their market share, more and more small companies are moving the Competition Commission to seek relief from alleged predatory business practices. Of the 94 complaints received by competition watchdog CCI in the past one year after the body became fully functional, a good number were from small domestic manufacturers against the practice of multinational corporations gaining monopoly through extensive mergers and acquisitions, an official source said. One such case pertains to glass manufacturers who approached the CCI against a big MNC, he said, without naming the company. It was alleged that the MNC had entered India by acquiring a domestic firm in the 90s, and later made a slew of acquisitions to establish itself as the sole supplier of glass tubes and other products. "Though the acquisition occurred much before the CCI was formed, it would be interesting as the case also establishes some of the ideas that form the background of the mergers and acquisition provisions that we (CCI) are trying to bring out," the official said. The CCI became fully functional in May last year, with the appointment of chairman Dhanendra Kumar and other members of the commission. The Competition Act 2002 empowers the watchdog to deal with cases relating to anti-competitive behaviour and abuse of dominance. However, the M&A norms, which mandate companies above a certain turnover threshold to seek the CCI's approval before taking over a company, still remains to be notified. The CCI was set up with the aim of preventing practices that impair competition, protect interests of consumers and ensure freedom of trade carried on by different market participants. Another such case, the official said, pertains to a multinational pharma company that had initially tied up with local magazines and journals for advertisement of its products. Later, the MNC prohibited journals from accepting printing advertisements of other pharma companies. The journals had to follow the terms as the MNC gave them huge revenue through advertisements, the official said. A similar complaint, he said, was lodged by medicine shopowners who had complained about restrictive conditions being imposed by industry associations. The conditions, it was complained, were affect the pricing of drugs and profit margins of shopowners. One of the conditions imposed by the association, which demands a big membership fee, was that only member-stockists would be allowed to sell medicines directly to nursing homes. Even companies were restricted from selling medicines directly to nursing homes. The commission has already initiated a probe against anti-competitive practices by large companies and trade associations. - www.business-standard.com

FISCAL STATE IN MIND, FINMIN MAY CUT DTC CORP TAX RATES IN PHASES [19 July 2010]

A sharp cut in corporate tax rate proposed in the direct taxes code is likely to be done in stages to ensure that tax collections do no plummet, derailing the government's attempts to bring the fiscal situation under control. The direct taxes code, or DTC, has proposed a cut in corporate tax rate to 25% from the current 30%, but will withdraw most tax exemptions available to companies. The government is likely to lower the tax rate to 27.5%, or a reduction of 2.5 percentage points, when the code comes into effect, likely from April 2011. "The general view is that the corporate tax rate be brought down to 25% in a phased manner in the DTC regime," said a government official familiar with the manner. A sharp reduction in the statutory tax rate could dent the tax revenues particularly when the code has also proposed to widen the tax slabs for individuals as well with the highest 30% rate indicatively pegged at incomes in excess of Rs 25 lakh against the current Rs 10 lakh. Though the statutory corporate tax rate is 30%, the effective overall tax rate is about 22% because of the various exemptions available. "It would not have been possible for the government to keep the original plan of levying corporate tax at 25% because of the revenue giveaways on MAT (minimum alternate tax) and capital gains tax," said Uday Ved, head of tax at consultancy firm KPMG. "But even a tax rate of 27.5% is good news for companies and would be very competitive compared with other countries barring China," he added. The government has laid out a roadmap to reduce fiscal deficit from the current unsustainable levels. A bonanza from the auction of 3G spectrum will help it cut deficit to the budgeted 5.5% of the GDP in the current year. But going down from thereon to 4.8% will be difficult if the government lowers the tax rates sharply. A special task force under the central board of direct taxes (CBDT), the apex direct taxes body, is working on a legislation for the new code, which is expected to be introduced in the monsoon session of Parliament. Finance minister Pranab Mukherjee has kicked off a comprehensive reform of the country's taxation regime - a new code for the direct taxes and a comprehensive goods and services tax, or GST, to replace the plethora of indirect taxes. Both are expected to be introduced from the next fiscal. The government has already come out with a second draft to address the specific concerns of the industry and the individual tax payers. The new discussion paper, which will be the basis for the law on direct taxes, has made several changed including addressing the biggest concern of the industry, the minimum alternate tax, or the MAT. The MAT is now proposed to be levied on book profits, as is the case now, and not on gross assets as proposed in the first draft of the code. The rule was seen to be loaded against the asset heavy companies such as those in the infrastructure sector while favouring operating cost intensive industries like IT. The new discussion paper has also reworked the taxation rules for retirement savings, giving relief to the individual taxpayers. - www.economictimes.indiatime.com

CAPITAL TO HAVE 264 SPL COUNTERS FOR FILING I-T RETURNS [20 July 2010]

The income tax department today said it will open 264 special counters from July 21-31 in the Capital and national capital territory region, to accept returns from individual taxpayers. "The income tax department would set up 264 special counters to receive income tax returns at Mayur Bhawan and Pragati Maidan for the benefit of taxpayers," Income Tax Delhi Circle-I chief commissioner Meenakshi Singh told reporters. The Mayur Bhawan counters will be operational from July 21-23 and from July 26-27, while the Pragati Maidan counters will be open from July 28-31. She further the department expects to receive over 5 lakh returns in these two camps compared to 4.5 lakh last year. The last day for filing returns is July 31. "I advice the public not be wait for the last day (July 31) to file their returns. - www.pti.com

UK LAW FIRMS MAY HAVE TO PAY TAX ON ALL PROFITS FROM INDIA OPS [20 July 2010]

A ruling by the Mumbai bench of Income-Tax Appellate Tribunal (ITAT) could result in UK-based law firms having to pay more tax in India. The order, issued on July 16 by a two-member bench of Pramod Kumar and RS Padvekar, said the UK-based law firm Linklaters will have to pay tax on its income of over Rs 23 crore, even though it does not have an office in India. This case was for the assessment year 1995-96, but the reasoning in the order would hold for other years. The ITAT's reasoning is based on a peculiar provision in the India-UK double taxation avoidance treaty, which says tax is payable on profits indirectly attributed to the Indian operation. Therefore, all profits of the UK-based law firms arising from Indian operations, irrespective of whether the work is done in India or not, will be taxed here. But a part of the ITAT ruling will benefit professional firms from other countries, thanks to its stand that taxing partnership firms could lead to double taxation. Partnership firms are generally not taxed abroad. Instead, the partners are taxed directly. The Indian income-tax authorities have taken the stance that since such firms are not taxed abroad, it is right to tax them in India as the question of double taxation does not arise. However, ITAT held that even in such cases, the same income gets taxed twice. This was because even if the partnership firm was not being taxed twice, the partners still have to pay tax twice on the same income. Consequently the bar on double-taxation would come into play. This part of the ITAT ruling is expected to benefit law firms coming from countries other than the UK. The tribunal, in the judgement running over 100 pages, held that Linklaters should pay income tax in India on all its India-related income, on account of the retrospective amendment in the last budget to section 9(1) of the Income Tax Act. The tribunal held that Linklaters had a permanent establishment in India under the India-UK treaty, as its partners had spent more than 90 days in India in a year. Whether an establishment is permanent or not is often taken into account while deciding tax cases. The term permanent, when used in this particular context, indicates whether a firm has a functioning office in India. If the answer is yes, the Indian tax authorities have been aggressive in pressing claims. The ITAT held that the provisions of India-UK tax treaty did not come to the rescue of Linklaters. A similar matter is being heard by the Supreme Court in the case of Clifford Chance, another UK-based law firm. The Court has asked for details of billing done by Clifford Chance in last 12 years. The apex court is yet to rule. Its decision on Clifford Chance will perhaps apply here as well. - www.economictimes.indiatimes.com

INSURANCE FUNDS SOON FOR INFRASTRUCTURE: PRANAB [21 July 2010]

The Union Finance Minister, Mr Pranab Mukherjee, on Tuesday said the Insurance Regulatory and Development Authority and the Planning Commission will develop a framework to give a further fillip to infrastructure financing by the insurance industry. "Insurance sector has contributed immensely for infrastructure development. It is desirable that insurers should support creation of infrastructure for the people," he said while launching an IRDA Call Centre for Grievance Redress and Information Bureau here on Tuesday. The Government is also working with the IRDA to strengthen the insurance ombudsman system. "Registration of complaints suo motu and by reference by IRDA are being planned," the Finance Minister said.
Tax Reliefs
The IRDA Chairman, Mr J. Hari Narayan, requested the Finance Minister to provide better tax benefits for the insurance products in the proposed new Direct Taxes Code (DTC). The benefits should be ten times of the cover amount in view of the long-term nature of the products, he suggested. At present, the tax benefit is at five times the cover. The proposal in the DTC is to extend the benefit only if the annual premium reaches 20 times the cover. The pension products should also be given same treatment in view of the long-term nature investment, he said. In general insurance, Mr Hari Narayan said the motor third party damages on road should be made limited. During the last decade of IRDA's existence, insurance penetration had gone up from 1.8 per cent to 4 four per cent while the per capita insurance density had improved from Rs 350 to Rs 2,000.
Caution on complexity
Mr Mukherjee also cautioned the industry on the complexity of products and high operation costs. "The global financial crisis was due to these factors. There is a need for lean organisation and cost-cuts by leveraging IT," he said. - www.thehindubusinessline.com

HOUSE NEAR METRO, PAY MORE PROPERTY TAX NOW [08 July 2010]

Living near the Metro line might cost some colonies dearly with the interim report of the third municipal valuation committee recommending re-categorizing colonies like Lajpat Nagar-I from category C to A along with many other colonies such as Chandni Chowk - E to C - Saket from C to A etc. Other colonies which have been re-categorized based on other criteria such as civic amenities, road network includes Mayur Vihar - which has been upgraded from D to C. Said an official: ‘‘ Other colonies which have been upgraded due to proximity to the Metro include Model Town from C to B, Rajouri Garden and Sarvapriya Vihar from B to A, Janakpuri from D to B and Moti Nagar from D to C, Kamla Market and Kalkaji - which are proposed to be upgraded from D to C.‘‘ Meanwhile, colonies being recategorized based on other criteria include Madhu Vihar from D to C, Preet Vihar from C to B and Rohini from D to C. As per the report, a total of 168 colonies will be re-categorized with maximum colonies being upgraded from E to D. If MCD goes ahead with re-categorization of colonies, there will be a major change in the tax slab for upgraded colonies. Areas under the jurisdiction of MCD are at present, divided into categories A to H depending on the infrastructural facilities there. Any colony that has a grading of 89 or more in terms of facilities, comes under category A and category B has grading between 75 and 88. At present, there are 28 category A colonies in Delhi, where the tax rates are higher. The reports also suggest increasing the property tax levied on commercial rented properties. Added the official: ‘‘ The report says that by doing so, MCD will earn an additional revenue of Rs 180 crore.‘‘ Besides this, the report suggests levying taxes on 5-star hotels , multiplexes, petrol pumps, farmhouses (non-residential ), malls based on the rates fixed for category ‘A‘ while for three and four star hotels, the rates will be same as those charged for category ‘B‘. Said an official: ‘‘ If this happens , malls will land up paying Rs 8.90 crore more, guesthouses will have to shell out 10 crore more. Similarly, the amount of money paid by all the above categories will increase substantially.‘‘ The third municipal valuation committee‘s interim report has also recommended MCD should try and increase its tax base. - www.economictimes.indiatimes.com

INCREASE I-T EXEMPTION TO RS 5 LAKH, URGES GOA CHAMBER [08 July 2010]

Pleading for maintaining vertical integrity and fairness in taxation, the Goa Chamber of Commerce and Industry (GCCI), the body representing trade and industry, has suggested that the basic slab of exemption for Income Tax should be increased to Rs 5 lakh. In its memorandum over the proposed Direct Tax Code forwarded to the Union Finance Ministry, the GCCI further suggested that since a number of international concepts have been now incorporated in the Code, a tax rebate may also be allowed based on the number of dependent family members (as is prevalent in UK, US, Australia, Canada, etc.). Alternatively, a standard deduction should be allowed to the salaried employees, it stated.

EXEMPTION
Dealing elaborately on the taxation proposals in the proposed Draft Code, the memorandum sent by the president of GCCI, Mr Caesar Menezes, said, at present, exemption is provided for certain categories of investment as well as income earned from PPF, LIC etc. However, according to the proposed measures, investment and income will be exempt as long as the amounts are not withdrawn. Upon withdrawal, the amounts will be fully taxed. The GCCI has said that since the Code has allowed a maximum limit of Rs 3,00,000 as a deduction from taxable income, any amount contributed in excess of these limits do not earn any tax relief. However, according to the Code, the excess amount will now be taxed in spite of the fact that there was no tax relief claimed. This will result in double tax. Further, this provision will be harsh for the salaried class. As such, it has suggested that a proper mechanism should be provided to ensure that the amounts, for which exemption is not claimed, is not taxed. Also, relief should be provided by giving exemption up to specified limits. - www.thehindubusinessline.com

SEZ DEVELOPERS STEP UP DEMAND FOR CONTINUED TAX SOPS [08 July 2010]

The likelihood of new units in Special Economic Zones losing Income-Tax exemptions in the Direct Taxes Code regime has stepped up representations to the Centre. According to the DTC revised draft, units coming up in SEZs after the implementation of the Code from April 1, 2011, would not get I-T holiday. Many SEZ developers, including infrastructure major GMR, have written to the Prime Minister, Dr Manmohan Singh, the Finance Minister, Mr Pranab Mukherjee, the Commerce and Industry Minister, Mr Anand Sharma, and State Chief Ministers about their concerns on the adverse impact of DTC on their SEZ projects. Mr Ajay Nijhawan, Convenor, Export Promotion Council for EOUs and SEZs Panel for SEZ Developers, told Business Line that, "At stake is around Rs 30,000-crore worth exposure that banks and financial institutions have to SEZ projects under different stages of development. Many of these SEZs are awaiting new units to come up. If the benefits provided by the SEZ Act are taken away, these loans could turn non-performing assets." Highlighting similar representations received by him, the Andhra Pradesh Chief Minister, Mr K Rosaiah, too has written to the Union Finance Minister. Mr Rosaiah stated that the Andhra Pradesh Government had "made conscious attempt to attract international investors to make sizeable Foreign Direct Investments under the SEZ scheme." In order to restore investor confidence in Government policies, he wanted Mr Mukherjee to personally intervene and ask the Finance Ministry to issue a clarification that all the benefits originally provided to developers and units under the SEZ Act be continued even after the DTC comes into effect.

‘Migration of economic activity‘
The SEZ Developers‘ Association of India has also written to Mr Mukherjee that if tax benefits are not given to new units, there would be migration of economic activity to other countries, in turn resulting in loss to India. The Association said if tax benefits are withdrawn, no new unit will come up in SEZs, adding that developers will lose huge investments made in land and infrastructure if companies do not set up units. GMR‘s letter to the Tamil Nadu Chief Minister, Mr M. Karunanidhi, states that the DTC, in its present form, would not only affect the investment climate of the State and the country but also its Krishnagiri SEZ project. GMR has asked Mr Karunanidhi to take up the matter with the Centre. Calica Constructions, which is developing an IT/ITes SEZ in Gujarat with an investment of Rs 650 crore, has made similar demands in an appeal to the Prime Minister, Finance and Commerce Ministers. The DTC draft states that it would protect profit-linked deductions for developers and existing units in SEZs for the `unexpired‘ period. But the Finance Ministry is against tax breaks for new units. It favours investment-linked deductions. The SEZ Act provides developers 100 per cent I-T exemption for a block of consecutive 10 years of the first 15 yeas. It also grants units total I-T exemption on export profits for the first five years, and 50 per cent exemption for the next five years. - www.thehindubusinessline.com

INDIRECT TAX MOP-UP ZOOMS 43% TO RS 56,930 CR IN Q1 [09 July 2010]

Indirect tax collection soared by a whopping 43 per cent to Rs 56,930 crore in the first quarter of the current fiscal on the back of an upswing in industrial activity. The revenue from customs, excise and service tax, which make up the indirect taxes, during the April-June quarter of the current fiscal stood at Rs 56,930.15 crore, up from Rs 39,693.78 crore in the year-ago period, a finance ministry official told PTI. Out of the total indirect tax collections, realisation from customs zoomed by 60 per cent to Rs 28,135 crore and excise by 55 per cent to Rs 19,536 crore. Service tax collection, however, declined by 3 per cent to Rs 9,258 crore during the reporting quarter. The government has budgeted an overall tax mop-up of Rs 7.46 lakh crore during this fiscal. While Rs 3.16 lakh crore of this are expected to be realised from the indirect taxes front, Rs 4.3 lakh crore are expected to be collected from direct taxes, which mainly consist of corporate tax and personal income taxe. Sources attributed the higher indirect tax collection to partial withdrawal of the stimulus measures in the Budget, besides economic recovery witnessed in the current fiscal. Rising prices of crude oil in the international market also contributed to higher realisation from customs. Finance Minister Pranab Mukherjee in the Budget raised excise duty from 8 per cent to 10 per cent and also increased duties on crude oil and petroleum products. The minister, however, did not raise the service tax rate retaining it at 10 per cent. The overall economic growth in the current fiscal is estimated at 8.5 per cent, up from 7.4 per cent in the previous fiscal. As per the latest figures, industrial production in April, the first month of the fiscal, jumped to 17.6 per cent. Reflecting the overall economic buoyancy, direct tax collection, which include corporate tax and personal income tax, rose by 15 per cent to Rs 68,675 crore. Corporate tax collection soared by 21.65 per cent to Rs 43,439 crore during the first quarter. - www.business-standard.com

I-T OFFICIALS SEARCH OFFICES OF GAMMON INDIA [09 July 2010]

Income Tax (I-T) officials today carried out search operations at the offices of infrastructure major Gammon India in four cities. A company spokesperson told PTI that some officials had visited the premises but "we do not know what is happening". According to sources, I-T officials have been carrying out the search in four offices of the company in Delhi, Mumbai, Nagpur and Vadodara. "The search started in the morning and is going on," a source said. In its website, the company claims it "is not only the largest civil engineering construction company in India, but can lay claim for the largest number of bridges built in the whole of Commonwealth (group of countries)". Last year, the company, which is a contractor of Delhi Metro, was in news after an accident at a construction site that killed six people. The company, was also found guilty of negligence in a similar mishap in 2007, where a flyover in Hyderabad collapsed killing two people. Gammon India‘s had posted a net profit of Rs 144.79 crore last fiscal and sales were at Rs 4471.79 crore. The company‘s shares touched an intra-day low of Rs 210.25 on the Bombay Stock Exchange, before closing the day at Rs 224.75 per share, up 4.29 per cent from the previous close. - www.business-standard.com

LIC, OTHERS GET NOD FOR TAX-FREE INFRA BONDS [10 July 2010]

Investment up to Rs 20,000 eligible for tax break The government today allowed Life Insurance Corporation of India (LIC) and a few other finance companies to issue tax-free infrastructure bonds. An investment up to Rs 20,000 in these bonds will qualify for income tax deduction. The rebate will also be allowed for bonds issued by Industrial Finance Corporation of India, Infrastructure Development Finance Company and any other non-banking finance company classified as an infrastructure finance company. The Reserve Bank of India (RBI) recently classified L&T Infrastructure as an infrastructure finance company. The government has termed the bonds issued by these lenders as ‘long-term infrastructure bonds‘, which will get deduction under Section 80CCF of the Income Tax Act. The tenure will be a minimum of 10 years, with a lock-in of five years for investors. "Investment up to Rs 20,000 in these bonds will be eligible for deduction from the total income of the assessee. The deduction will be in addition to the deduction of Rs 1,00,000 allowed under sections 80C, 80CCC and 80CCD of the Act," the finance ministry said in a press statement. It will be mandatory for the subscriber to give his permanent account number to the issuer. "From our perspective, this will open another avenue for raising funds. It will help us diversify our borrowing base and bring down the cost of funds," said Vikram Limaye, executive director, IDFC. He said IDFC would issue the bonds this financial year, depending upon its fund requirements and investor interest, which is normally better towards the end of the year.

Financing gap
The estimated spending on infrastructure in the 11th Five-Year Plan ending March 2012 is $500 billion (nearly Rs 25 lakh crore). The target has been doubled for the 12th Plan. The government is also planning to launch an $11-billion infrastructure fund. In the 2010-11 Budget, Finance Minister Pranab Mukherjee had said the government would issue tax-free bonds to meet the dual objective of encouraging savings and meeting long-term needs of the infrastructure sector. In 2004, RBI allowed banks to issue infrastructure bonds with a maturity of five years and above. But bankers said they could not leverage this fully, as there was no incentive for people to subscribe to these bonds in the absence of tax benefits. Also, there is an asset-liability mismatch as infrastructure projects require loans for 15-20 years, whereas banks do not have access to such long-term funds as most deposits have a lock-in of less than five years. - www.business-standard.com

SALES TAX MAY HAVE MINIMAL IMPACT ON HOUSING DEMAND [10 July 2010]

The recent imposition of service tax on residential properties will have only a minimal impact on the demand for residential properties in the real estate sector as most buyers in the market are end-users than investors. This service tax of 10.3 per cent on 25 per cent of the home value, which will translate into a close to 2.6 per cent of the home value on projects under construction, was proposed in the Union Budget of 2010-11. This proposed service tax has been effective since last Thursday and is expected to increase property prices in the near future. "There will only be a minimal impact of the recent service tax imposition on residential segment as the pattern of demand is more need based than aspirational. As there are more end-users in the market, demand will be sustained at the present level," Jackbastian K Nazareth, chief operating officer, Puravankara Projects Ltd, said. After the lull in the residential demand in 2008-09 due to the recession, there has been a revival of demand in the residential space with better hiring prospects and higher disposable incomes, he added. He, however, said that the rise of close to 2.6 per cent in property prices were expected to be passed on to consumers as most developers were already dealing with price rises of raw materials like cement and steel in recent times. Other developers also echoed similar sentiments regarding the overall demand situation in the real estate sector. "The imposition of a service tax may increase the price to some extent. However, with the economy showing great momentum and improved business and job scenario, the present fiscal will be much better than the previous one," J C Sharma, managing director of Sobha Developers, said. He also said, the recent rate hikes would have a minimal impact till home loan rates stayed in single digits. However, industry experts have a different view. "As property prices have already increased 15-30 per cent, any additional cost component will have some negative impact on the residential market," Goutam Chakraborty, regional director of real estate consultancy firm, Colliers International, said. He also said, any rate hike in home loan segment could dampen the present growth scenario. Further, according to real estate consultancy firm Jones Lang Lasalle Megharaj (JLLM), the recent service tax will burden the consumer who is already dealing with hike in property prices. " Recent service tax imposition will increase the unaffordability quotient of homes, especially in cities like Mumbai and Delhi, where home buyers are already struggling with the recent spurt in residential property prices," Gautam Hora, vice president-capital markets of JLLM said. He also said, in cities like Pune, Bangalore, Chennai and Hyderabad, where consumers were more price sensitive, developers would have greater challenges with rising prices. - www.business-standard.com

EPF INT RATE MAY BE FIXED AT 8.5% [12 July 2010]

The Employees Provident Fund (EPF) is expected to retain the interest rate for its six crore account holders at 8.5 per cent in 2010-11, with a formal announcement likely to be made in August. "I hope that the recommendation of 8.5 per cent by the Finance and Investment Committee of the EPFO will be retained," Central Provident Fund Commissioner S Chatterjee told PTI. "The EPF rate will hopefully be finalised in the next EPF Board meeting, which is expected in August," he said. Asked if there was any shortfall in return from the current payout of 8.5 per cent, Chatterjee said there was no deficit. Asked how the EPFO was maintaining a decent return, Chatterjee said, "As we do not trade with investments, the yield to maturity from securities bought at par in the past are mitigating the impact of low returns from current investments. - www.financialexpress.com

NO CENVAT CREDIT ON EXCISE-DUTY EXEMPTED BROKEN BOTTLES: CBEC [12 July 2010]

The manufacturers of bottled beverages will no more be able to retain the Cenvat credit or the tax set-off paid on inputs, claimed on broken bottles if they have already claimed the excise duty exemption on them. After finding some instances of this sort, the Central Board of Excise and Customs (CBEC) has formally nullified its 1975 instruction, which was being used as the loophole for this malpractice. As per the 1975 instruction, tolerance of 0.5 percent was allowed on account of broken bottles during movement, storage and clearance for excise duty exemption. However, the instruction was neither removed nor modified after the introduction of the Cenvat credit rules of 2004. The Board said the instruction became redundant with the implementation of the Cenvat credit rules. The Board said some manufacturers of bottled beverages are claiming the benefit of duty exemption on broken PET bottles up to 0.5 percent, but are keeping the Cenvat credit taken on these. "In some judicial pronouncements, this benefit has been allowed to the parties on the limited ground that the instruction has not been rescinded or modified by the Board and further the Cenvat credit taken on bottles as input have been allowed to be retained by the assessee," the CBEC said. The Board said the introduction of the Cenvat credit rules have now made the old instruction of 1975 redundant. "After the introduction of the Modvat and subsequent replacement of the same with the Cenvat, any circular, instruction or provision inconsistent with the same has no relevance," it said in a recent circular. The CBEC emphasised on the point of safeguarding revenue and avoiding any misconception about the issue. "To avoid such disputes in future, it is stated that the instructions ... have no relevance in the present Cenvat scheme, and the instructions stand rescinded," it said. - www.economictimes.indiatimes.com

FINMIN SAYS NO CUT IN BUDGET FOR UID PROJECT [13 July 2010]

The government on Monday said that it will provide all funds necessary for implementation of the unique identification number project. "The ministry of finance is fully committed to expeditious implementation of the UID project and all funds required for the smooth rollout of the project by the UID Authority will be provided ," finance minister Pranab Mukherjee said in a statement. The finance ministry dismissed reports that it had slashed the budget for the UID Project from estimated Rs 7,000 crore to Rs 3,000 crore. "This is not the correct position ," the statement said. The Centre had proposed a nearly 16-fold hike in its annual budget to Rs 1,900 crore for the UIDAI. Of this Rs 1,300 crore will be used for enabling the registrars while the remaining will go towards the setting up of the IT infrastructure. - www.economictimes.indiatimes.com

INTEREST IN SEZs WANING ON UNCERTAINTY OVER TAX SOPS [13 July 2010]

The uncertainty over tax benefits for special economic zones, or SEZs, arising out of the proposals in the draft direct taxes code seems to have started impacting flow of investments into these enclaves. The number of new applications for setting up dropped to three this month. A worried commerce department is already in discussions with the finance ministry on the fallout of the proposed code on the SEZ policy. "We get enquiries by the dozens from investors over what would happen to their investments once the DTC comes in," a commerce department official told ET. There is a lot of apprehension that profit projections made on the basis of the existing SEZ Act may go awry once the new tax code comes in, the official added. The board of approval, which gives the green signal to new zones, has received only three applications for consideration in its meeting scheduled on Tuesday. The board had received six proposals each in the previous two meetings and eight proposals in each of the preceding two meetings. "We are not surprised by the declining numbers as setting up new zones may not seem as attractive as before," the official said. The draft direct taxes code has proposed withdrawal of exemptions for new units that come up after the tax code is implemented and replacement of tax exemption on profits for developers with sops on investments. The direct taxes code is expected to implemented from the next fiscal year. SEZs may also attract minimum alternative tax (MAT) of 18% as the proposed DTC has no provision of giving any sector exemption from this levy. The shift from profit-based tax exemption to investment-based tax exemption for developers would adversely affect sectors such as IT where investments are low. Under the SEZ Act, SEZ units get 100% tax exemption on profits earned for the first five years, a 50% exemption for the next five years and another 50% exemption on re-invested profits in the following five years. SEZ developers, on the other hand, get 100% tax exemption on profits for ten years which they can choose in the block of the first fifteen years.

No duty on transfer from DTA to SEZ: SC
The Supreme Court on Monday said transfer of goods from domestic tariff areas (DTA) to special economic zones (SEZ) is not subject to export duty, reports PTI from New Delhi. The Supreme Court was hearing a plea filed by the Centre challenging an order of the Gujarat High Court barring export duty on goods supplied to exportoriented SEZs from DTAs. An SC bench dismissed the plea of the Centre that any transfer of goods from a DTA to an SEZ falls within the meaning of an export. - www.economictimes.indiatimes.com

RANKING BUSINESS TOWNS BY BANK DEPOSITS OR I-T COLLECTIONS [13 July 2010]

The RBI‘s list of top 200 towns by bank deposits is one of the few good ways of ranking towns according to the business potential. But the list is sometimes misleading. Checking with information about income-tax collections made available under the Right to Information Act, it turns out that bank deposits do not adequately reflect the importance of 16 of the top 50 towns, which have been highlighted in the accompanying table. Bareilly, Durgapur, Hubli, Jalpaiguri (the centre of West Bengal‘s tea industry), Nashik, Panchkula (a suburb of Chandigarh), Shillong, Thane and Tiruchi top the list of "overlooked" towns. Kolkata, Guwahati, Patna, Thiruvananthapuram and, to some extent, Kanpur come at the other end of the spectrum; they rank much higher on deposits than on income-tax collections. Of course, this cuts both ways. One could as well say that income-tax collections in these towns are much less than what one would have expected on the basis of aggregate bank deposits. The data on tax collections relate to non-corporate income-tax collected by offices under the jurisdiction of each Chief Commissioner of Income-Tax. The broken down figures generally add up to the all-India total. The sharp drop in the case of Dehra Dun and Shillong from one year to the other may reflect a bifurcation of jurisdiction. Thanks to the vigour of the tax collection drive the past few years, a lot of catching-up is going on as regards the gap between what we know of the situation on the ground. - www.thehindubusinessline.com

INDIA INC FACES TAXING ISSUES OVER IFRS [1 July 2010]

As corporate India comes to terms with the complex new system of accounting standards, which it will have to adopt beginning April 1, it is vexed with two related issues that it has no control over - taxation and the companies law. As it is, the kaleidoscope of conflicting perspectives is complex enough to confound even the knowledgeable. For example, when you depreciate different components of an asset over varying useful lives and at different rates as mandated by the International Financial Reporting Standards (IFRS), as opposed to applying a single rate for the entire asset as is done today, will the depreciation load rise or decline? You have freehold land and haven‘t decided if it is for real estate development or your own office building - is the land, then, an asset or an investment? If preference capital is to be treated as a loan, then is the dividend actually ‘interest‘? Questions, hundreds of them, answers to which is more a matter of opinion than an established principle, are buzzing around the Indian accounting profession. Yet, these appear mere pinpricks when you compared with the problems thrown up by aspects of taxation policy and the companies law.
Uncertainties
At a seminar on IFRS organised here by the Confederation of Indian Industry, experts rued that the authorities were yet to come out with a fundamental guideline as to whether from April 1 next year, the taxable profits will be computed according to existing Indian accounting standards or IFRS. A committee has been formed comprising members from the Central Board of Direct Taxes and the Institute of Chartered Accountants of India. The committee will presumably first look into revenue implications for the Government rather than extend help to the corporate sector. Beyond that nobody knows how the taxation regime will pan out I the IFRS era. The predominant view is that since only about a thousand companies will mandatorily migrate to IFRS on April 1 (see table), the Government will continue with the Indian GAAP (Generally Accepted Accounting Principles) for computing taxable profits. If it is to be Indian standards for tax computation and IFRS for compliance with corporate legislation, it will be tough on accountants who will have to keep two separate books of accounts. Yet, experts point out, it is not as simple as that. The Income-Tax Department being no spring chicken, the principal alarm in the corporate world is that the taxman will choose what suits him best, from Indian standards and IFRS, and you will end up with the worst of both worlds. A senior finance professional puts this succinctly: "What is not ‘income‘ today will become ‘income‘, what is ‘expenditure‘ will not be treated as expenditure." For instance, under IFRS, preference capital is treated as a loan and you will charge preference dividend to Profit and Loss account, but the I-T Department will not let you call it ‘expenditure‘. If you ‘fair value‘ an asset (as oppsed to the conservative ‘cst method‘) and sell it, what will be the basis for calculating capital gains? If you fair value your property, will the local municipal authorities not ask you to pay property tax on the basis of "your own valuation"? Unless the haze of taxation clears first, there is bound to be chaos in the marketplace.
Balance sheets
Equally, the lack of alignment between the Companies law and IFRS has left the accountants nonplussed. The familiar Schedule VI in which we are all used to reading the balance sheets will be (or ought to be) a relic in a few years because the format of presentation of the balance sheet under IFRS would be in according to a different prescription. But the Companies Act will need to be amended to make way for a smarter presentation of financial statements than Schedule VI. Leave aside the disconcerting fact that an overhaul of the Companies Act has been pending for nearly a decade and several avatars of the Companies Bill have come, and gone. The current Bill does not seem to be in alignment with IFRS. Schedule VI is one example, but there are other issues, such as the classification of current and non-current assets. Amid all this confusion, there seems to be one hope in the corporate world: That like the Companies Bill, the Direct Taxes Code, and a whole lot of other things, IFRS implementation will also get put off to a later date. - www.thehindubusinessline.com

AS TAX SOPS GO, ANDHRA PRADESH SMES TO GET SPACE IN SEZs [2 July 2010]

IT and ITES companies, which were a worried lot because of the probable expiry of Central tax sops next year, are now relieved, with the Andhra Pradesh Government deciding to build SME Towers in the notified (SEZ) areas across the State. To begin with, the State would soon take up such projects in Hyderabad in association with realty developers and IT firms. Addressing a press conference about the IT Policy for 2010-15 here on Thursday, Mr Komatireddy Venkat Reddy, Minister for IT, said the Government would also set apart 10-15 per cent of all Government IT works to SMEs.
Focus on SMEs
"Big companies do not need any handholding. But small and medium companies need some help," he said. When asked about the concerns of the IT industry on the expiry of Central tax sops, he said he had discussed the issue with the Chief Minister, Mr K. Rosaiah, and would take this up with the Union Government as well. The new policy, which focused on start-ups, SMEs, IT product and research and development companies, had set a target of achieving exports of Rs 70,000 crore by the end of 2015 and creating 1.25 lakh direct jobs. "The policy offers still better incentives for those who are setting up units in Tier II and Tier III cities," he said.
Mega projects
The State had decided to offer a negotiated package of incentives for mega projects mooted by companies that currently employ 1,000-1,500 people and register an annual turnover of Rs 100 crore in the last three years. In order to encourage developers to create ready-to-use space, the Government had decided to exempt the units set up in SEZs, IT parks and ITIR (IT Investment Regions) areas from zoning regulations. They were also exempt from paying land usage conversion charges. "There would be no limitation on height of buildings," he said, pointing out that the plans should be in conformation with the National Building Code. - www.thehindubusinessline.com

CONSTITUTIONAL AMENDMENT BILL ON GST IN FINAL STAGES [3 July 2010]

The law ministry is likely to finalise the Constitutional Amendment Bill on the Goods and Services Tax (GST) by next week. It will send draft of the Bill to the finance ministry which will share it with the empowered group of state finance ministers on GST for its feedback. "We are discussing it (the Bill) with the law ministry. It is in the semi-final stage. Hopefully it will be ready by next week," said an official in the finance ministry. The empowered committee will have its next meeting on GST on July 21. The Centre plans to send the draft Bill for consideration of the states before this meeting so that its provisions can be discussed on that meeting and GST is put on the fast track. The government is trying to get the approval of the states on the draft of Constitutional amendment at the earliest so that the Bill can be introduced in the monsoon session of Parliament likely to begin on July 26. This is for the first time since the Constitution was enacted that a tax base is proposed to be shared between the Centre and the states. GST‘s entry in the Constitution will allow both the Centre and the states to levy tax on the same set of goods and services. - www.business-standard.com

GOVT TO TIGHTEN CAPITAL GAINS TAX NORMS WITH MAURITIUS [5 July 2010]

Domestic companies routing their investments through Mauritius may soon have to pay capital gains tax as the tax authorities are pressing for checking the misuse of the tax treaty with the island nation. The Central Board of Direct Taxes (CBDT) suspects that the government is losing large amount of revenue due to routing of investments by domestic firms through Mauritius. Capital gains tax is a levy payable on the profit from sale of assets, investments, capital accumulation etc. "The government would soon press for a review of the capital gains tax provisions in its tax treaty with Mauritius. The main reason cited by the CBDT is suspected round-tripping of funds and also loss of revenue, particularly in the case of large investments," a finance ministry official told PTI. Round-tripping refers to money from one country going out through unofficial channels and is invested back into the same country from outside to avail of tax benefits under the double tax avoidance agreement (DTAA). India had signed a DTAA with Mauritius way back in 1983. During the 2000-2010 period, the maximum foreign direct investment inflows into the country came through the Mauritius route. The Indian Ocean nation has pumped in a whopping USD 47.24 billion into the country during the period, constituting 43 percent of the total FDI inflow. The CBDT has been pressing for a review of the capital gains tax provisions for the past four to five years. However, it could not be done due to the diplomatic ties New Delhi has with the island nation. "The review could not be pressed through due to delicate diplomatic and historical ties that India has with Mauritius. But this time we are hopeful," the official said, adding the country will stand to gain in many ways than one by reviewing the tax treaty with Mauritius. "FIIs in the financial markets will start yielding revenue in the country. FDI in businesses will generate revenue for the government when the ownership in such businesses changes hand outside the country," he added. Mauritius recently said it had no problem in renegotiating its tax treaty with India, which feels that the pact is being misused by certain investors. "Renegotiation of the DTAA with New Delhi will not be a problem...I think it is on the agenda," Mauritian industry and commerce minister Showkutally Soodhun had said after a meeting his Indian counterpart Anand Sharma. The government has sought to re-negotiate the DTAA with Mauritius, besides 75 other countries, as it is concerned over the huge loss of tax revenue. To curb these misuses, the revised discussion paper on the Direct Taxes Code has proposed that domestic laws will override bilateral tax agreements on certain conditions like branch profit tax. - www.economictimes.indiatimes.com

INDIANS IN US, OTHER COUNTRIES TO GET TAX CONCESSION [5 July 2010]

It is what you may call charity with benefit. Indians staying in the US could in next three months avail tax concession on the money they will spend on social welfare projects at their native places in India. Under the ‘India Development Foundation for Overseas Indians‘, an initiative of Ministry of Overseas Indians, they will get tax exemption if they want to build schools, primary health centres and other infrastructure in their villages and places of origin in India. The Ministry has already started the process of registering the foundation in the US and it will be in place in next three months, Overseas Indian Affairs Minister Vayalar Ravi told PTI in an interview. After the US, the ministry will register the foundation in other countries, including the UK and the Gulf. According to official data, there are about 24 million Indians overseas. The foundation, a ‘not-for-profit‘ trust being set up under the Indian Trust Act, 1882, by the Ministry, will be the nodal agency to implement the projects across the country in cooperation with state governments and selected NGOs. Designed to help in rural infrastructure development, the minister said his ministry would not only target millionaires or rich NRIs for contribution but the average Indian diaspora who want to give back to the society. "I want the ordinary NRIs, those who can contribute USD 1,000 a year, to contribute to the corpus. Your village or your panchayat may not have a primary health centre or a primary school, no buildings maybe. So, you can jointly contribute and say specifically what you want," Ravi said. The fund would be concentrated on two issues - hospitals and primary school buildings - and may be self-help groups at a later stage. "Our aim is to mobilise resources of overseas Indians. There are thousands and lakhs of places where there is no school and primary health centres. The contributions will be utilised for building schools, health centres and for encouraging micro credit," Ravi said. The setting up of the foundation was announced by Prime Minister Manmohan Singh while inaugurating the sixth Pravasi Bharatiya Divas at New Delhi on January 8, 2008. - www.economictimes.indiatimes.com

SEZS UNLIKELY TO GET TAX SOPS UNDER DTC [5 July 2010]

The Finance Ministry indicated that the revised Direct Taxes Code (DTC) draft may stick to denying tax sops to special economic zones (SEZs), even as Commerce Minister Anand Sharma assured that the interests of investors will be protected. Stating that profit-linked incentives were "distortionary", the ministry said SEZs had failed to boost the manufacturing sector--as was expected from them. "The Commerce Ministry should first give its appraisal on what is the current state of SEZs, before demanding continuation of income tax benefits," a senior finance ministry official said. According to the official, the ministry feels that SEZs have concentrated only on a few specific sectors, and not helped turn India into a major manufacturing hub. "SEZs were meant to be export processing units, while they have turned into export zones for only IT and processed diamonds ... Where are the manufacturing units that were supposed to have come up in SEZs?" the official said. Over 60 per cent of the 578 approved SEZs are in the IT-related sector. Further, the official cited the draft DTC as saying, "Profit-linked deductions are distortionary in nature as they create an incentive to inflate profit as well as transfer profits from a taxable entity to a non-taxable one." While the industry is up in arms against the proposal and is banking on the commerce ministry‘s support, the finance ministry believes that SEZs failed to serve the purpose for which the incentives were given, the official said. "There are definitely differences between the two ministries on tax concessions for new SEZ units," he added. The DTC draft has denied the 10-year income tax benefits to new SEZs units. After meeting Finance Minister Pranab Mukherjee on Friday, Anand Sharma had said that the interests of investors in SEZs would be protected to the "best extent possible". Earlier, Revenue Secretary Sunil Mitra had said that while the Finance Ministry was not looking into revisiting the DTC draft proposal, it may go for investment-linked benefits for SEZs. A Bill on the DTC is expected to be introduced in the monsoon session of the Parliament, starting later this month. - www.business-standard.com

LET BANKS ISSUE TAX-FREE BONDS: ICICI BANK CEO [6 July 2010]

ICICI Bank has urged the Government to allow banks to issue tax-free infrastructure bonds. Tax-free bonds would prove to be a cost-effective source of funding for banks and enable them ramp up their infrastructure financing activities, ICICI Bank‘s Chief Executive Officer and Managing Director, Ms Chanda D. Kochhar, has said. Also, priority sector classification for infrastructure financing would go a long way in making lot of funds available for infrastructure projects, Ms Kochhar told a conference on ‘Public-private partnership (PPP) in State Highways‘ here on Monday. Currently, infrastructure financing by banks are not covered under priority sector classification. Simply put, for every Rs 100 lent by a bank to an infrastructure project, the bank has to lend Rs 40 more to priority sector. "With nation‘s priority being infrastructure, this kind of funding should qualify as priority sector…," she noted. Presenting a sort of wishlist to enable more banking funds for infrastructure financing, Ms Kochhar also suggested that reduction of Statutory Liquidity Ratio and Cash Reserve Ratio requirements on these bonds will bring down the cost of funding for infrastructure projects. Ms Kochhar also suggested that banks should be allowed to provide guarantees for external commercial borrowing loans. "There are many of foreign lenders that do not want to take a direct risk on infra projects in India", she noted. Banks have been consistently looking at infrastructure funding in a big way. Over the last decade, the total infrastructure funding by banks has gone up from $2 billion to $67 billion. All infrastructure financing is long-term. But the source of funding for the banks has been short-duration, leading to asset-liability mismatches. - www.thehindubusinessline.com

INDIA LIKELY TO PITCH FOR DEEPER TAX INFORMATION EXCHANGE AT G-20 MEET [7 July 2010]

India will pitch for deeper tax information exchange agreements at the G-20 to make such pacts more effective in facilitating the flow of crucial data on tax evasion. New Delhi is expected to present a detailed paper on the issue at the forthcoming Seoul meeting, urging that domestic laws of countries must support such agreements for effective information exchange. "These agreements should ensure that there is actual flow of information and benefits for countries entering them (agreements) in checking evasion," said a finance ministry official privy to the discussions. In some countries, for instance, domestic laws relating to privacy protection tend to come in the way of sharing information with other countries, defeating the very purpose of such pacts. The proposal for a multilateral information exchange comes even as India has initiated talks with Switzerland for revising its tax treaty to include tax information exchange agreements, or TIEA, to get details on likely tax evaders. India also wants improvement in the quality of information that is shared under TIEAs to make such agreements more meaningful. The current TIEA rules allow exchange of information only on specific queries in respect of an ongoing tax investigation. Fishing or general queries are not allowed. New Delhi also wants the current system of peer review under the global forum to ensure that such agreements are meaningful and have not been entered into just to get a tax haven struck off from the list of non-compliant countries of the Organisation for Economic Cooperation and Development. Nearly 500 such bilateral pacts have been signed so far since last April, after the G-20 pledged to crackdown on tax havens at the London summit. Immediately after the G-20 pledge, the OECD came out with a list of non-compliant countries, based on compliance with international tax standards. Since last April, as many as 28 jurisdictions have joined the list of countries that have substantially implemented the international tax standards. Going by the latest OECD list, there are no jurisdictions that have not committed to international tax standards where there were four countries- Costa Rica, Malaysia (Labuan), the Philippines and Uruguay- in that category last April. - www.economictimes.indiatimes.com

NET DIRECT TAX COLLECTIONS UP 15.5% IN Q1 [7 July 2010]

Buoyed by strong show on industrial growth front, the Centre‘s net direct tax collections grew 15.49 per cent in the first quarter this fiscal to Rs 68,675 crore (Rs 59,465 crore). This growth is substantially higher than the 3.65 per cent year-on-year growth seen in net direct tax collections in the first quarter of 2009-10. Much of this growth performance could be attributed to the robust increase in corporate tax payout for the quarter under review. For the April-June 2010 period, corporate tax collections grew 21.65 per cent to Rs 43,439 crore (Rs 35,709 crore), official data showed. Corporate tax collections grew 3.31 per cent in the first quarter of 2009-10. For the June 15 instalment in 2010, corporate advance tax stood at Rs 26,876 crore, reflecting a 31.4 per cent increase over Rs 20,456 crore collected in the same instalment last year. The 31.4 per cent growth is the highest since 2005, according to an official release here. The corresponding growth in corporate advance tax stood at -3.4 per cent, 25.1 per cent, 30 per cent and 26.9 per cent for FY 2008-09, 2007-08, 2006-07 and 2005-06, respectively. Personal income-tax (including securities transaction tax or STT, and residual FBT and BCTT) grew 1.24 per cent to Rs 24,075 crore (Rs 23,780 crore) during the first quarter of 2010-11. Meanwhile, STT collections nosedived to Rs 1,094 crore during April-June 2010, reflecting a 25.21 per cent decline over Rs 1,462 crore collected in same period last year. This steep fall in STT collections is being attributed to the decline in stock market turnover for the period under review. STT collections had declined even in the first quarter of last year to Rs 1,462 crore against Rs 1,623 crore in April-June 2008, reflecting a decline in value of trade in stock market. In Budget 2010-11, the Government had pegged the direct taxes collection target for the current fiscal at Rs 4.3 lakh crore. The Finance Minister, Mr Pranab Mukherjee, recently said at an income-tax commissioners‘ conference that he expects the Revenue Department to better this Budget Estimate, although the target was not being formally revised upwards. - www.thehindubusinessline.com

SC REJECTS TPAs' TAX DEDUCTION APPEAL [08 July 2010]

This is the latest twist to the two-year dispute between tax authorities and third party administrators, or TPAs. On Tuesday, the Supreme Court dismissed an appeal against the Bombay High Court order which held that TPAs - which are typically companies that liaise between insurers and hospitals to facilitate cashless treatment for policyholders - should deduct taxes while making payment to hospitals. This verdict would enable the income-tax department to raise an additional Rs 600 crore annually. The money reimbursed every year to hospitals for cashless services to policyholders amounts to Rs 4,000 crore annually. Of this, 60% is facilitated by the TPAs who pay out of float funds parked with them by non-life insurance companies. TPAs receive a commission from insurance companies, usually about 5%, on the health insurance premium. I-T authorities claim that TPAs have to deduct tax at the rate of 10% at source before making payments to hospitals. The bench comprising Chief Justice SH Kapadia, Justice KS Radhakrishnan and Justice Swatanter Kumar, advised the petitioner TPA, Dedicated Health Services, to go back to the high court with a review petition if it‘s not satisfied with the order. The Supreme Court has given a deadline of two weeks for filing the review petition. The Bombay High Court as well as the Karnataka High Court have dismissed the TPAs‘ appeal against I-T orders asking them to deduct tax while making payments to hospitals. The Bombay High Court gave a verdict in favour of I-T department in May, 2010. The I-T department, Mumbai, had carried out surveys last year on six TPAs and raised tax demands ranging from Rs 3 crore to Rs 69 crore. The survey had revealed that none of them had deducted tax while making payments to hospitals, from the fund available to the patients by insurance companies. The I-T authorities, therefore, issued demand notices under section 194 (J) of the Income-Tax Act, which deals with payment for professional services. The tenor of the I-T department‘s argument is that TPAs are obligated to deduct TDS and the critical factor in deciding this issue is the agreement between the TPAs and hospitals. TPAs claim that they don‘t make the payment to hospitals in discharge of their own personal liability and responsibility, but only in discharge of the primary liability and responsibility of the insurance companies which provide funds to TPAs in the form of a float account. - www.economictimes.indiatimes.com

STATES SHOULD NOT LOSE OUT IN GST: CONG CMs [08 July 2010]

Chief ministers of the Congress-ruled states on Wednesday asked the Centre to protect states against any loss of revenue from the switchover to goods and services tax (GST). "The general feeling (among the states) is that there should not be any loss (to states)," Maharashtra Chief Minister Ashok Chavan told reporters after the meeting of Congress CMs with the Union Finance Minister Pranab Mukherjee. Mr Mukherjee‘s deliberations with the CMs of Congress-ruled states comes ahead of the crucial meeting of the empowered committee of state finance ministers on July 21 to take a call on the Constitutional amendments and other key issues related to GST. The Centre has already assured states that it will compensate them in full for any revenue loss on account of this switchover. Mr Mukherjee, who is keen to introduce Constitutional amendments required for GST rollout in the forthcoming Monsoon session of Parliament, is reaching out to states to ensure the timeline. The GST seeks to create a pan-India market by subsuming all state taxes such as value-added tax, entertainment tax, luxury tax, purchase tax, entry tax and central taxes like excise duty, service tax, countervailing duty and special additional duty into a single tax. A disagreement between the Centre and states has held back the rollout of GST, that is now scheduled to kick-in from April 1, 2011. Mr Mukherjee has already met chief ministers of various states on the issue earlier to convince them to support the comprehensive reform of the country‘s indirect tax structure. "Union finance minister asked the states to come up with their suggestions. He said he would try and factor them in," Delhi chief minister Shiela Dikshit said. Andhra Pradesh Chief Minister K Rosaiah said: "We had some discussions ... We expressed our views." Mr Mukherjee met the chief ministers of various states including Delhi, Andhra Pradesh, Arunachal Pradesh and Haryana, besides Maharashtra, to facilitate implementation of the GST from April 1, 2011. - www.economictimes.indiatimes.com

SC SAYS DIVIDEND-STRIPPING LEGAL [09 July 2010]

In a significant ruling, the Supreme Court has ruled that taxpayers can legally reduce their liability through dividend-stripping, a term used for selling mutual fund units at a discount post-dividend. An apex court bench headed by Chief Justice SH Kapadia has said there is nothing wrong in dividend-stripping after getting the tax benefits. The bench further said such dividend stripping after availing of the tax rebates cannot be termed as abuse of law. "Even assuming that the transaction was pre-planned there is nothing to impeach the genuineness of the transaction," said the bench agreeing with an earlier Bombay High Court order. Dividend-stripping is purchase of shares just before a dividend is paid, and sale of the same after that payment, when they go ex-dividend. This is often done by investors and corporate houses as an investment strategy to avoid/reduce income tax liability. The court further said the income tax department cannot term the loss occurred after such transaction is not a valid transaction as it has been pre-planned one. The bench further said the interest/dividend received on such investments are regarded as "return on investment and not return of investment". The court also said only in certain cases where the purchase price includes the right to receive "crystallised and accrued dividend, that have already accrued and become due for payment before the date of purchase of the units, that the same has got be reduced from the purchase of the investment". But mere receipt of dividend subsequent to purchase of units "merely on the basis of a person holding units at the time of the declaration of the dividend on the record date cannot go to offset the cost of acquisition of the units", pointed out the court. The order came over a petition filed by the IT department challenging the orders of the Bombay High Court. The case dates back to 2000, when the brokerage house Walfort Share Stock had bought tax-free dividends from Chola Freedom Technology Mutual Fund at a unit price of Rs 17.23. As per the terms and conditions, the brokerage house got 40 percent tax concession from the deal. Three days after the deal, they sold it at Rs 13.23 a unit, thus incurring losses. When the firm filed its annual returns then it got the benefits under section 10 (33) of the Income Tax Act, but the department declined to adjust the loss suffered in dividend-stripping, contending that it was not a business. - www.financialexpress.com

HC DEFERS VODAFONE TAX DUES CASE TO AUG 2 [09 July 2010]

The Bombay High Court has deferred its hearing of the dispute between Vodafone and the Income Tax Department over the telecom operator‘s liability to pay tax on its $11.1 billion buyout of Hutchison International‘s stake in Hutchison-Essar in 2007 till August 2. Justice D Y Chandrachud and Justice J P Devadhar adjourned the matter till August 2 on a plea made by the Income Tax counsel. On May 31, the court had stayed the ruling of the I-T Department, which held that it had the jurisdiction to tax the transaction, which involved a claim of around $2 billion. The tax department‘s contention is that Hutchison made capital gains on the deal and while paying the purchase amount to Hutchison, Vodafone should have deducted tax on it. The department first issued a show-cause notice to Vodafone in 2007, which it challenged before Bombay High Court. After the court dismissed Vodafone‘s petition, it went to the apex court in January, 2009. The Supreme Court sent the case back to the I-T Department, to decide first whether the latter had the jurisdiction to raise the tax claim, because both Vodafone and Hutchison are based in foreign countries. Since the I-T Department held that it had the jurisdiction, the case will begin afresh in the Bombay High Court. - www.business-standard.com

COS RUSH TO SEZs AHEAD OF DTC ROLL OUT [10 July 2010]

Some Indian companies are rushing to set up units in special economic zones (SEZs) after the draft tax code (DTC) proposed doing away with tax concessions for units that will not be operational when the code is implemented next fiscal year. Real estate and SEZ developers across the country are reporting a surge in interest from companies in IT, engineering and other sectors which are keen on availing benefits under the SEZ. Bangalore-based Assetz Property, Raheja Builders, Embassy Group, DLF, K Raheja and Prestige Estates are some SEZ developers which are seeing a significant interest from companies. IT companies, which are already facing the prospect of losing tax benefits under the two-decade-old Software Technology Parks scheme (STPI), are among those showing interest. Demand for space within existing SEZs has doubled in the past few weeks ever since the DTC was released. "Many SEZs are not fully occupied. Companies which want to avail tax benefits will have to set up units before March 31 next year," said Hemal Zovalia executive director tax and regulatory service KPMG India. The Draft Tax Code (DTC), which proposes to radically change India‘s tax structure, has expressed its broad desire to do away with benefits linked to profits. "Profit-linked deductions are distortionary in nature as they create an incentive to inflate profit as well as to transfer profits from a taxable entity to a non-taxable one," DTC says. It has proposed protecting the benefits already enjoyed by SEZ developers and called for a similar provision to protect exemption for units already operating in SEZs. The fact that it is completely silent on new units that could come up in SEZs has spurred companies into thinking that the late comers will not get any benefits. "We are in close consultation with the departments concerned and are studying the implication of the DTC. The ministry will take a call on the issue," said DK Mittal, additional secretary, the Union commerce ministry. The ministry wants that incentives to developers and units in SEZs should continue at least till 2016. "We need some amount of STPI and SEZ incentives to continue for three years. Our software exports are around $60 billion and the government needs to support smaller companies for competitiveness," said Ganesh Natarajan, member chairmen‘s council Nasscom. Software lobby Nasscom will approach the government to continue tax benefits in SEZs. According to the current policy, SEZ units get a 100% income tax exemption on exports for the first five years and 50% for the next five years. They also get exemption on 50% of the ploughed back export profit for the next five years after the first decade of operation. "The market has started picking up and we are seeing excess demand from tenants," said Mike Holland, CEO, Assetz Property Group, which has been approached by a dozen companies over the past weeks. "We are in the process of developing one million square feet of SEZ ,of which one-third has aleadybeing leased," said Mr Holland. Raheja Builders is now developing 75 acres in a Delhi-based SEZ that has a total proposed area of 255 acres. However, companies have already demanded around 165 acres. "There has been growth in the engineering sector and we are negotiating with many companies to set up units," said Ajay Midha, director, SEZ Raheja Builders. Mumbai-based K Raheja too has pre-leased a major chunk of its 20-million sq ft SEZ. Pre-lease is the practice of allotting space to buyers even before construction has begun. It is a common practice among corporates booking space in SEZs. Gurgaon-based realty major DLF has also revived its IT/ITeS tax-free zone in Kolkata that was denotified in 2009. Cisco, which currently occupies 1.2 million sq ft at Cessna Business Park, Bangalore has opted for an an additional 0.66 million sq ft. "We plan to consolidate all future growth in one campus and are on track to meet our headcount projections of 10, 000-12,000 employees in the next couple of years," said a Cisco spokesperson. The company has reportedly expressed interest for four million sq ft in the Bangalore SEZ. An email query sent to Accenture, IBM, Yahoo and HP, however, did not elicit any response." We are banking on real estate consultant to guide us on our expansion but as of now SEZs is a better option to set up operation," said a senior official from a multinational technology firm. His firm plans to hire 8,000 employees this year. Realty companies that are yet to begin SEZ construction have put their plans on hold on account of the ongoing confusion over fiscal concessions and land dispute issues. - www.economictimes.indiatimes.com

INDUSTRY AGAINST RETAIL REGULATORY AUTHORITY [10 July 2010]

There aren‘t many takers in industry for the Centre‘s proposal to set up a retail regulatory authority. In a meeting called by the Ministry of Consumer Affairs and Food on Thursday, industry players made their opposition to the proposal clear. They said the government should instead set up a body to promote retail trading. Industry representatives, who attended the meeting convened by Consumer Affairs Secretary Rajiv Agarwal, supported the government‘s proposal to set up a national commission to study the problems of the retail sector. Apart from representatives from Icrier, Ficci and CII and Confederation of All India Traders, among others, the meeting was attended by an under secretary-level from the Department Of Industrial Policy and Promotion (DIPP) that released a discussion paper on opening up multi-brand retail to foreign investors. A person present at the meeting said a major issue on the agenda was discussion on ways to reduce the difference between farm-gate and consumer prices. The ministry has the industry‘s views on this. Economists believe opening foreign direct investment (FDI) in multi-brand retail is likely to help lower the prices of food products by reducing wastage and direct sourcing from farmers. The consumer affairs ministry sought industry and DIPP views on what are the issues in traditional retail and what can be done to address these issues. It said the govt would have a nationwide discussion on this soon. Covertly, the discussion relates to FDI in multi-brand retail. The govt is keen to allow foreign players in food grain retail also, as the leakage in PDS has become a pain in its neck. The ministry asked attendees‘ views on how to modernise the existing (traditional) retailers and bring them under the organised bracket so that leakages in PDS can be reduced. The industry said the suggested retail promotional board should be formed, which can train small retailers and make them understand the benefits of modern retail and also make them technology-friendly and thus transparent. "It is very positive that the government has started discussion of opening up FDI in multi-brand retail. One of the important aspects is to make the small retail players understand the importance of modern retail and yesterday‘s discussion was a step in that direction," said Vineet Jain, business manager, north zone, Big Bazaar who was also present in the meeting. Besides, the ministry also sought views on what should be there in the Model Retail Law. - www.business-standard.com

SEZS, DEVELOPERS MAY COME UNDER MAT NET [10 July 2010]

Although the revised draft Direct Taxes Code (DTC) has suggested the continuation of profit-linked incentives for existing SEZ units and developers, they are likely to come under the ambit of Minimum Alternate Tax (MAT). The revised draft of DTC has recommended the rate of MAT at 2 per cent of the value of gross assets as the final tax. The provision, if adopted, would negate the very objective of the SEZ policy, as the developers and units would then end up paying MAT, based on their book profits, which will be a final tax. The Department of Commerce is learnt to have written to the Department of Revenue on the issue and is awaiting a response. Commerce ministry officials told Business Standard the matter had been taken up by Commerce Minister Anand Sharma with Finance Minister Pranab Mukherjee. The issue is likely to be discussed in the meeting of the Board of Approval, headed by Commerce Secretary Rahul Khullar, on July 13. "The commerce and finance ministers are discussing the matter. It is about credibility of the country as a manufacturing hub and investment destination. No investor would come to India if there is no stability of policy. All the money would become mere NPAs (non-performing assets) if the SEZs become sick units," said a Commerce Department official. At present, companies developing SEZs and the units are exempt from paying MAT. "No exemption from MAT is contemplated in the DTC to the SEZ developers and the units, existing or new. This implies that the finance ministry has decided to virtually take away the so-called tax benefits from even the existing SEZ developers, co-developers and units," said Vaish Associates Partner Hitender Mehta, who heads infrastructure and SEZ practices for the law firm. He is also one of the members of the SEZ council of Assocham. The finance ministry has also suggested in the draft DTC that carry-forward of MAT will not be allowed for claiming tax credit in subsequent years. "The way the provision of MAT has been proposed, if adopted, it will have far-reaching impact on the existing developers and units and the overall investment climate of the country would be dampened," said Suneet Maheshwari, chief executive, L&T Infrastructure Finance Co Ltd. The provision of MAT, as suggested in the draft DTC, would affect all the SEZs currently operational, such as the Mundra Port SEZ in Gujarat, Reliance SEZ, Mahindra World City SEZs and Dahej SEZ. "It seems that SEZ units and developers are liable to pay MAT. SEZs‘ attraction will be lost if this provision is implemented. Imposition of MAT will hamper export and economic growth of the country. This will result into additional burden of taxation on developers and units," said Navin M Raheja, chairman and managing director, Raheja Developers Ltd. According to a report by Assocham, the provision of MAT would discourage further investments in these tax-free enclaves that were conceptualised to boost the country‘s export and make India one of the global mnufacturing hubs. It has further argued that since SEZ units are not eligible to pay income tax on export profits, these should be forced to pay MAT as well. "If the developers and units are made to pay MAT, it really would not matter whether they are in SEZs or not. The only differential factor would be the quality of infrastructure. Global investors might as well, then, look at our neighboring countries like Vietnam, Philippines, Sri Lanka and Bangladesh to put in money and set up shop as these provide tax incentives based on the model that we had developed in India," said Nirav Kothary, senior vice-president (strategic consulting), Jones Lang LaSalle Meghraj. - www.business-standard.com

TAX-FREE INFRA BONDS TO HAVE 10-YR-PLUS TENURE [10 July 2010]

The tax-free infrastructure bonds proposed in this year‘s budget will have a minimum tenure of 10 years and a lock-in period of at least five years, allowing lenders to raise the much-needed long-term funds for the sector. The guidelines issued by the government on Friday said that only a select financial institutions will be allowed to issue these long-term infrastructure bonds. Industrial Finance Corporation of India, Life Insurance Corporation of India, Infrastructure Development Finance Company and non-banking finance companies lending exclusively to infrastructure sector will be eligible to issue these bonds initially. Banks have not been allowed access to these bonds. "These bonds provide an additional avenue to raise long-term funds for the infrastructure sector and to intermediate retail savings and channelise them into infrastructure sectors," said Vikram Limaye, executive director and member of the board of directors, IDFC. The government expects a $500 billion investment in infrastructure in the 11th Five-Year Plan ending March 2012, and has doubled the target to over $1 trillion for the 12th Five-Year Plan, 2012-17. Investment up to a maximum of Rs 20,000 in these bonds will be eligible for tax benefits. The amount invested in these bonds will be allowed to be deducted from the income of the tax payers. This Rs 20,000 investment in infrastructure bonds is outside the Rs 1 lakh maximum deduction allowed for investment in various schemes covered under sections 80C, 80CCC and 80CCD of the I-T Act. The yield would be linked to government securities of comparative residual maturity. The investors will be able to exit these bonds only after five years on the secondary market if they are traded or go in for a redemption. Investors will also be able to raise debt from banks by pledging or hypothecating these bonds after the five-year lock-in. There is a restriction on the amount these lenders can raise through these bonds - a maximum of 25% of their incremental lending to infrastructure sector over the previous financial year. They will also have to lend the funds so raised only to infrastructure sector, as defined by the RBI. IDFC is likely to raise such bonds this fiscal. "I certainly hope that we will issue these bonds this fiscal. But I cannot comment on the exact timing of issuance at this point. There will be regulatory processes that need to be followed and the timing of issuance will also depend on market conditions and investor demand," Mr Limaye said. As with most financial investments, it will be mandatory for the subscriber to furnish permanent account number to the issuer for investment in the bonds. Value Research CEO Dhirendra Kumar said investors must be careful while investing in these bonds, particularly those by the eligible NBFCs. "The tax incentives can be easily confused as some sort of sovereign guarantee. These are 10-year bonds with significant risks," he said. According to tax experts, the tax incentives may have o be reworked for these bonds as there is no mention of them in the draft direct taxes code. The code envisages an incentive regime in which only long-term retirement savings are incentivised. - www.economictimes.indiatime.com

TAX-FREE INFRA BONDS CAPPED AT 25% OF INVESTMENT [12 July 2010]

An infrastructure finance company can issue only 25 percent of its incremental investment as tax-free infra bonds in a year, says the finance ministry. "The volume of issuance (of tax free bonds) during this financial year will be restricted to 25 percent of the incremental infrastructure investments made by the issuer during the fiscal 2009-10," a senior finance ministry official told PTI. This means that if an infrastructure finance company (IFC) invested Rs 70 crore in infrastructure in FY09 and Rs 100 crore in FY10, then it can issue bonds only worth 25 percent of Rs 30 crore in FY11. And, in case it invested less or equal, then no bonds can be issued. "The objective is to link an IFC‘s level of activity in the infrastructure sector with the amount it plans to raise through bonds," said Infrastructure Development Finance Company (IDFC) executive director Vikram Limaye. The government on Friday allowed IFCI, LIC, IDFC, and non-banking finance companies classified as IFCs to issue tax-free infra bonds. "The government wants to step up infra investments to ensure expansion of the sector. Continuous incremental spending would ensure that funds are channelised properly," SMC Capitals equity head Jagannadham Thunuguntla said. Further, to ensure that the proceeds of the issue gets invested in the infrastructure sector, the government has also mandated that the funds thus raised has to be utilised towards lending into the sector. "The proceeds shall be utilised towards infrastructure lending as defined by the RBI," the official said. "To ensure aggressive deployment of funds and cut down on execution delays, the Centre has mandated that the funds raised be utilised when raised," Thunuguntla said. Sources said IFCs will have to invest in loans, bonds, other forms of debt and equity. Finance minister Pranab Mukherjee had earlier said public and private sector firms would be allowed to raise funds through long-term infra bonds. The Centre expects $500 billion investment in infra in the 11th Plan period ending March 2012, and has doubled the target to over $1 trillion for the 12th Plan. To promote infra investment, the 2010-11 budget proposed to exempt investment up to Rs 20,000 in long-term infra bonds from income tax. The amount is in addition to the existing overall tax exemption limit of Rs 1 lakh per annum for personal income taxpayers. The bonds will have a tenure of 10 years with a minimum lock-in period of five years. It means that investors will not be permitted to redeem the bonds before five years. - www.business-standard.com

NPS HAS A TAX EDGE, BUT WATCH OUT FOR ANNUITIES [13 July 2010]

The New Pension Scheme (NPS) is likely to get a makeover if the revised Direct Tax Code is implemented. However, the government is doing its bit to lure investors to take a close look at the NPS. Recently, the government announced the ‘Swavalamban‘ scheme through which it would add Rs 1,000 co-contribution every year for the next three years for everyone who joins the New Pension Scheme in this financial year. Any NPS subscriber who invests Rs 1,000-12,000 per annum between April 1, 2010 and March 31, 2011, will get Rs 3,000 free from the government.

The likely DTC impact
The revised DTC, if implemented without any changes, will keep the NPS out of the tax net. This new change will make the NPS an attractive investment opportunity. The government has proposed EEE (exempt-exempt-exempt) method of taxation for NPS, which implies the NPS will be exempt from taxes at all the three stages of deposit, appreciation and withdrawal. Earlier, the NPS proceeds were taxable at maturity.

Advantages
One of the major advantages is also the lowest fund management charge, which is Rs 99 per lakh (0.0009%) compared to charges of a pension plan offered by an insurance company, which is around 0.75-1.75% per year. This low-cost structure makes it more attractive than most annuity/pension plans offered by insurance companies, financial advisors say. The custodian charges are in the range of 0.0075% to 0.05%. Despite all charges, the cost of investment is cheaper than charges of mutual find and ULIPs.

How does it work?
Investors have an option to choose their investment mix among three categories. The first one (E) refers to high investment exposure in equity, which targets investors with a high risk appetite. Equity investment, however, is capped at 50%, which mainly comprises index funds. The second option (C) is high exposure in fixed income instruments, which targets investors of a moderate risk profile. These instruments include liquid funds, corporate debt instruments, fixed deposits and infrastructure bonds. The last option is pure fixed investment products (G) which offer low returns. Ideally, you should start investing for your retirement in your early thirties. If you have the advantage of longer investment horizon (20 years plus), equity is the best option to start with. But in the case of the NPS, you have to buy a life annuity offered by life insurance companies. The NPS requires the investor to use the retirement corpus to buy annuities to avoid taxation. As per the existing stipulations, you have to invest 40% of the corpus in annuities.

Other alternatives
Annuity plans which don‘t return the purchase price offer 8-9% and the ones that return the purchase price offer 50% a year are other options. Any bank deposits over five years, which offered 10% a couple years ago, offer around 8-8.5% today because of a decline in interest rates. There are other assured monthly income ptions like the Senior Citizens‘ Savings Scheme (SCSS) which offer 9%, PPF at 15% and the post office monthly income scheme at 8%. - www.economictimes.indiatimes.com

COS' E-RETURNS MUST HAVE DIGITAL SIGNATURE [13 July 2010]

Digital signatures will now be mandatory for all the electronically filed income-tax returns of companies, the Central Board of Direct Taxes (CBDT) has said. Currently, companies have to file their returns only in the electronic format - no paper returns are accepted by the Tax Department. This regime has been in place since the assessment year 2007-08. Simply put, companies cannot henceforth electronically file their returns without digital signatures. Before this move, companies could file their electronic returns with or without digital signatures. The CBDT has also expanded the ambit of electronic filing of returns to include individuals and Hindu Undivided Family (HUF) that are required to get their accounts audited under the income-tax law. Such assesses can file their income-tax return electronically (in form No. ITR-4) with or without digital signature. Earlier, this condition was applicable only to companies and partnership firms. Accounts are required to be audited under the income-tax law, if turnover or gross receipts from business exceeds Rs 40 lakh (Rs 60 lakh from assessment year 2011-12 onwards) or if turnover or gross receipts from profession exceeds Rs 10 lakh (Rs 15 lakh from assessment year 2011-12 onwards). "Such progressive measures should result in achieving better tax compliance coupled with efficient tax administration," Mr Aseem Chawla, Tax Partner, Amarchand & Mangaldas, told Business Line here. - www.thehindubusinessline.com

FILING OF E-RETURNS COULD TOUCH ONE CRORE THIS FISCAL: FM [14 July 2010]

The online filing of income tax returns could touch one crore-mark in the current financial year from 55 lakh in the last fiscal with the government making it mandatory for certain professionals and business entities as well apart from corporates. The finance ministry said that professionals, including doctors, lawyers and chartered accountants, earning over Rs 10 lakh annually will be required to file income tax returns electronically. Besides, all business entities and Hindu undivided families (HUFs) with a business income of over Rs 40 lakh per annum will also be required to mandatorily file income tax returns in the electronic format, the ministry said. "With the addition of Hindu undivided families and individuals, the e-file returns are likely to touch one crore," an official with the Finance Ministry said. Under the Income Tax Act, the individuals and HUFs are required to get their accounts audited if the turnover or gross receipts from business exceeds Rs 40 lakh (Rs 60 lakh from assessment year 2011-12) or receipts from the profession exceeds Rs 10 lakh (Rs 15 lakh from assessment year 2011-12). "Now all individuals and the Hindu undivided families (HUFs), who are required to get their accounts audited...are also required to file their income tax returns electronically with or without digital signatures," the official said. Earlier, this condition was applicable only to companies and partnership firms. Further, the ministry made it mandatory for all companies to file income tax returns electronically with digital signatures, a move that will facilitate faster filing of I-T returns by India Inc. The government had introduced the system for mandatory e-filing of income tax returns by corporates from assessment year 2006-07. The due date for submitting income tax returns for assessment year 2010-11 is July 31, 2010. - www.economictimes.indiatimes.com

NEW COMPANIES BILL LIKELY TO BE INTRODUCED IN WINTER SESSION [14 July 2010]

The Union Minister of State in charge of Corporate Affairs Ministry, Mr Salman Khurshid, said here on Tuesday that the parliamentary committee is expected place its report on the new Companies Bill during the forthcoming monsoon session of Parliament. "The committee appears to have finalised its report after deliberations and a process of consultations with the Ministry. We would be required to work on the Bill a little further after the committee report is placed in Parliament. We hope to get the Bill enacted through legislative passage in the winter session," Mr Khurshid told media persons. Mr R. Bandyopadhya, Secretary, Ministry of Corporate Affairs, said that by the end of this year the new Act might replace the old one. The Minister was here to attend a seminar on financial literacy, organised by the Federation of Indian Chamber of Commerce and Industry, and a meeting on the International Financial Reporting Standards (IFRS), organised by Indian Chamber of Commerce and KPMG. He said that his Ministry welcomed a formal proposal to shift the Department of Public Sector Enterprises from the Ministry of Heavy Industries. "We have expressed our willingness to accept the proposal," he added. Mr Bandyopadhya was previously the Secretary in the Department of PSE and integration of it with the Ministry, therefore, is likely to be smooth when transfer happens in the near future. But the Minister said that no timeframe had yet been fixed for such a transfer. The Minister said that while investigations and legal processes are continuing over the Satyam fraud, the new entity Mahindra Satyam was unlikely to face penal action from the US market regulator. "I understand the problem is over," he said. The company, however, will take some time to complete accounts as a firm decision is not possible at this stage on treatment of advances to the promoter outfits. "It is facing difficulty in identifying such advances as assets or receivables or bad debts. There are a few other technical issues that need to be sorted out," Mr Khurshid said. Earlier, responding to the West Bengal Finance Minister, Mr Ashim Dasgupta‘s suggestion on listing and equity trading platform for SMEs, Mr Khurshid said the Securities Exchange Board of India was to take a call on floating such an exchange. He said the Ministry is open to the idea of a new special exchange or a separate window at the existing exchanges, particularly the regional exchanges, for SMEs. The Minister felt that implementation of IFRS will be crucial for local corporate sector to raise funds abroad and attracting foreign investment. He said the Government was seized of accounting related issues, including that of fair value accounting. He said that the ticklish issues could be ironed out before the rollout of IFRS next fiscal. IANS adds: Mr Dasgupta proposed a joint venture capital fund with the Centre to facilitate small- and medium-scale industries West Bengal. "My suggestion is, if the Centre and the State com together to form a venture capital fund and if the middle-level industries can get access to that and in two-three years‘ time if they perform, they can be listed in the stock exchanges," Mr Dasgupta said. He said there are around 27 lakh small-scale industries in the State generating around 59 lakh employment. About plans for financial inclusion in the State, he said: "We have earmarked about 100 acres of land in the New Town area. We want to set up a full-fledged financial hub with all financial institutions in it. It will serve not only West Bengal but the entire Eastern and North-Eastern region." - www.thehindubusinessline.com

WATCH OUT FOR THE CHANGES IN CAPITAL GAINS TAX REGIME [1 July 2010]

Our Expert offers tips on various tax-related issues in this weekly column. One of the important mid- to long-term investment avenues where individuals invest their savings is equity and mutual funds. Also, Employee Stock Option Plans (ESOPs) have been used as an important tool by the companies, especially the start-up businesses and unlisted companies planning to go for IPO in near future, to attract, retain and motivate employees. One of the key attractions in respect of the equity shares/specified securities listed in a stock exchange is the nil/lower tax rate in comparison with other investment assets. This is, however, set to change in view of the revised discussion paper on Direct Taxes Code.
Long-term capital gains
If shares are held by the tax payer for more than 12 months, then gains arising from their sale/transfer are treated as long term capital gains. If the period of holding is lower, then such gain is treated as short term capital gains. Long term capital gains arising from the sale of shares listed on a stock exchange in India on which Security Transaction Tax (STT) is paid are not subject to tax. While short term capital gains arising in case of listed shares on which STT is paid are subject to tax at a concessional rate of 15% plus education cess. In case of unlisted shares, the long term capital gains are taxed at a concessional rate of 20% plus education cess. While the short-term capital gains are taxed at the applicable rate i.e. as per the slab rate applicable to the individuals. As per the revised discussion paper on Direct Taxes Code, capital gains is to be treated as income from ordinary sources and taxed at the applicable rates, as below: (i) Listed shares: In case of equity shares listed on a recognised stock exchange, which are held for more than one year from the end of the financial year in which these are acquired, the capital gains shall be computed after allowing a deduction at a specified percentage of such gains without any indexation. Thus, it would reduce the effective tax rate in case of long term capital gains. (ii) Unlisted shares: In case of long-term capital gains arising in case of unlisted shares, the base rate for determining the cost of acquisition is proposed to be shifted from 1 April 1981 to 1 April 2000. The capital gains will be computed after allowing indexation on this raised base. The capital gains on such assets will be included in the total income of the tax payer and will be taxed at the applicable rate.
Short-term capital gains
In case of short-term capital gains arising from any investment asset held for less than one year from the end of the financial year in which these are acquired, the capital gains shall be computed without any specified reduction or indexation benefit. Such capital gains will be included in total income of the tax payer and will be charged to tax at the rate applicable to the tax payer.
STT to continue
Further, theSTT is proposed to be continued albeit in a calibrated manner to be specified, being a tax on the transaction.
Important to note
It is important to note that it is proposed to tax capital gains whether long-term or short-term, listed or unlisted, as per the method/rates to be prescribed. Therefore, individual investors who have invested in the equities or equity-oriented funds need to analyse the impact of the proposed changes on their portfolio as the capital gains arising from sale of shares would now be subject to tax in all cases including those of listed shares. Similarly, the stock option schemes, especially those of unlisted companies, may require a re-evaluation as the long-term capital gains after IPO would now be subject to tax in the hands of the employees. - www.economictimes.indiatimes.com

COMMERCE MINISTER MAY TAKE UP SEZ TAX ISSUE WITH PRANAB [2 July 2010]

The Commerce and Industry Minister, Mr Anand Sharma, is likely to call on the Finance Minister, Mr Pranab Mukherjee, here on Friday at the latter‘s North Block office. Indications are that Mr Sharma will at the meeting take up the concerns expressed by the SEZ fraternity over the proposal to do away with tax breaks for SEZ units that are set up after April 1 next year. The revised discussion paper on the new Direct Taxes Code has made it clear that the profit linked deduction would be protected only for the existing units in SEZs. By implication, all new SEZ units set up after April 1, 2011, when the DTC is expected to come into force, will not get any tax breaks. The Finance Ministry is not in favour of profit-linked deductions. The meeting comes close on the heels of China‘s move to revalue its currency, the yuan, against the US dollar and also the ushering in of the base rate linked lending regime in India. There are indications that the meeting will see discussions on the cost of credit for exporters in the changed lending regime besides issues such as interest rate subventions for the export sector. - www.thehindubusinessline.com

IATA AGENTS OPPOSE SERVICE TAX ON ECONOMY CLASS [2 July 2010]

The IATA Agents Association of India, Kerala Chapter, has opposed the Central Government decision to charge service tax on all economy class passengers in addition to the existing service tax with effective July 1. The IAAI Kerala Chapter President, Mr P.B. Boss, said in a statement that the additional service tax that is absolutely a burden to the middle and low-class passengers and it should be withdrawn immediately. It has been decided to charge an additional 10.3 per cent of the gross value of the ticket or Rs 515 for a journey, whichever is less, for international passengers and 10.3 per cent of the gross value of the ticket or Rs 103 for a journey, whichever is less, for domestic passengers. Currently, based on the ticket fare, 1.26 per cent for international passengers and 0.618 per cent for domestic passengers or 10.3 per cent of the commission is collected through the travel agents as service tax. However, on top of this, the Government is charging further service tax, which is really distressing to the passengers, he said. The budget airlines that have started to help the Gulf Malayalees are also squeezing the passengers by charging Rs 515 as service tax. AirIndia Express, Air Arabia and NasAir are all decided to charge similar service tax, he added. - www.thehindubusinessline.com

TRANSFER PRICING: MARUTI ALLOWED TAX DEDUCTION ON AD SPEND [7 July 2010]

The Delhi High Court has sent back to the tax authority a transfer pricing matter relating to Maruti Suzuki India Ltd (MSIL), noting that the approach adopted by the transfer pricing officer (TPO) was erroneous and unsustainable. The transfer pricing matter related to creation of benefit to the Japanese parent - Suzuki Motor Corporation - from the use of marketing intangibles such as trademarks through licensing arrangements with MSIL. The ruling essentially disagrees with the TPO‘s approach of mathematically disallowing for tax deduction purposes, the ad spend and other promotional expenses in excess of those made by similarly situated and comparable companies in the auto sector. The TPO had sought to disallow the excess ad spend of MSIL, stating that promotional efforts of the Indian affiliate would enhance the value of a trademark/logo owned by Suzuki Motor Corporation of Japan. The ruling pertained to assessment year 2004-05 for which a transfer pricing audit was conducted. It related to the use of licensed trademarks provided by Suzuki for use in cars manufactured and sold in India. MSIL continued to use the trademark ‘Maruti‘ along with the word ‘Suzuki‘ on the rear of the vehicles manufactured and sold by it. Besides disallowing the excess ad spend incurred for promoting ‘Suzuki‘ intangibles, the tax authority had also in its order disallowed royalty paid to Suzuki for use of trademark. The TPO contended that Suzuki should have compensated the taxpayer for the assistance provided in developing the marketing intangibles. Accordingly, non-routine advertising and promotional expenditure was adjusted as being the value of the marketing intangibles accruing to the benefit of Suzuki. The Delhi High Court has concluded that the comparables chosen and the method adopted by the tax authority were faulty and unjustified. It has set aside the TPO order and directed the tax authority to again determine the appropriate arms length price, say tax experts. The High Court held that the tax authority failed to appreciate that it would have been difficult for MSIL to compete with automotive giants who were making an entry into India and achieve further growth without incurring adequate expenditure on advertising, promotion and marketing its products. In the present case, the benefits from ad spend incurred by MSIL would accrue only to it (MSIL). This is because the products promoted and advertised were being manufactured and sold solely by it and Suzuki had no right to sell any product under joint trademark. "The High Court ruling is 75 per cent positive for Maruti Suzuki India. It had filed the writ petition seeking the quashing of the TPO‘s final order. While admitting that the TPO‘s approach was erroneous, the Court has not quashed it, but asked the tax authority to again compute the arm‘s length price after factoring in the points made by Maruti", Mr Vijay Iyer, Tax Partner, Ernst & Young told Business Line. - www.thehindubusinesslie.com

SHARMA TO TAKE UP TREATMENT OF SEZs IN DIRECT TAXES CODE WITH PRANAB[24 June 2010]

The Commerce and Industry Minister, Mr Anand Sharma, will soon meet the Finance Minister, Mr Pranab Mukherjee, to take up the concerns of Special Economic Zone developers on tax treatment under the Direct Taxes Code (DTC) regime. The Commerce Secretary, Dr Rahul Khullar, told Business Line that the two Ministries would work out a "compromise" solution. But he declined to elaborate. Many major developers have contacted the Commerce Ministry and the Export Promotion Council for Export Oriented Units and SEZs (EPCES) regarding the possible adverse impact of the DTC on their SEZ projects. They include the foreign ones such as garment major Brandix of Sri Lanka, which is developing a Rs 6,000-crore SEZ in Andhra Pradesh, and Ascendas of Singapore that is setting up five SEZs. Besides, there are worried domestic developers of huge multi-product SEZs like the 5,000-acre Sri City SEZ in the Andhra Pradesh-Tamil Nadu border, Mihan SEZ in Nagpur, Mahindra World City SEZ in Jaipur, the Rs 20,000- crore Dahej SEZ, Sterling SEZ and the 6,000-hectare Mundra SEZ by Adani in Gujarat. Dr Khullar said, "Foreign and domestic investors have contacted us saying they have problems with the DTC. But at present, there is no final decision on these issues. We will project our case on how SEZs are to be handled (in the DTC regime) when the Commerce Minister meets the Finance Minister. Thereafter, some compromise will be arrived at, as to what can and what cannot be done." SEZ developers would meet Dr Khullar on June 25 during an EPCES meeting in Kolkata. They would also hold talks with EPCES officials on June 28. The revised DTC draft seeks to end income-tax (I-T) exemptions to new units (coming up after March 31, 2011 when the DTC would become operational) in SEZs. However, it has expressed intent to protect profit-linked deductions for units already existing in SEZs for the ‘unexpired‘ period. The Finance Ministry had opposed profit-linked deductions, while favouring investment-linked deductions. The Commerce Ministry had recently said the incentives to developers and units in the SEZ Act should not be changed by the DTC. Under the SEZ Act, units get total income-tax exemption on export profits for the first five years, and 50 per cent exemption for the next five years. The developers get 100 per cent I-T exemption for a block of consecutive 10 years of the first 15 years. According to developers, if the DTC does not provide I-T exemptions to new units in SEZs, it will amount to closing down the SEZ scheme as no one will come forward to set up units in SEZs. The SEZ Act and Rules came into force in 2006. So far, investments in SEZs have crossed Rs 1.5 lakh crore and exports are over Rs 2.2 lakh crore, according to the Commerce Ministry. SEZs have also provided direct employment to over 5 lakh people. Mr Mukherjee, in his 2010-11 Budget speech, had said that the Government was committed to ensuring continued growth of SEZs to draw investments as well as to boost exprts and employment. - www.thehindubusinessline.com

SERVICE TAX TO BE LEVIED ON AIR TICKETS FROM JULY 1[25 June 2010]

Domestic and international air fares would rise by Rs 100 and Rs 500 respectively from July one with the government issuing a notification to bring air travel into the service tax ambit. Government had proposed in the 2010-11 Budget that 10 per cent service tax be charged on air travel aiming at raising Rs 600 crore and Rs 1,000 crore annually. It had proposed to expand the scope of air transport services to attract service tax to include domestic journeys and international journeys in any class. The notification, issued by the Department of Revenue on Tuesday, said that for domestic travel, "ten per cent of the gross value of ticket or Rs 100 per journey, whichever is less" would be charged from passengers travelling in any class -- business or economy. - www.pti.com

GOVT EXEMPTS A SLEW OF SERVICES FROM TAX[25 June 2010]

Starting next month, there will be no service tax on construction of some low-cost housing, power distribution, foreign travelers in transit, those flying to and from the Northeast, services within ports and airports, and certain tournaments and championships. "The notification shall come into force on July 1," the Central Board of Excise and Customs (CBEC) today said in several notifications related to separate areas issued to enforce the provisions of the Finance Act 2010. Low-cost housing under the Jawaharlal Nehru National Urban Renewal Mission and the Rajiv Awas Yojana have been exempted from service tax beginning July 1. The government also exempted certain services that are provided within ports and airports from tax. "Repair of ships or boats or vessels belonging to the Government of India, including the Navy or the Coast Guard or the Customs, but does not include government owned public sector undertakings," the CBEC said as to the services exempted from tax. Other services within ports and airports that have been exempted from tax are supply of water, supply of electricity, medical treatment, formal education, fire service agencies and pollution control services. The Finance Ministry exempted the taxable services provided to any person by another person authorised to distribute power under the Electricity Act 2003 for power distribution. Besides, tax exemption has been allowed to tournaments and championships organised by certain bodies such as national sports federations or federations affiliated to it, School Games Federation of India, Association of Indian Universities and Paraolympic Committee of India, among others. The government also exempted foreign travelers from service tax if they are in transit to a different country without passing the immigration and customs area. People employed or engaged by the aircraft operators in any capacity on board the aircraft have also been exempted. Further, those flying to and from the Northeastern states, Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Baghdogra (in West Bengal), have also been exempted from service tax. However, the finance ministry has postponed the exemption of service tax in relation to transport of specified goods by railroads. The exemption, which was earlier delayed to July 1 from April 1, has now further been delayed till January, 2011. - www.economictimes.indiatimes.com

INDIA INC'S TAX OUTGO SEEN UP 18% IN Q1[25 June 2010]

Indian companies are estimated to have paid 18% higher tax in the June quarter, compared with the year-ago period, signalling strong recovery in the economy. "Although it will take three more days for us to compile the figures, we know that the tax collection has gone up at least 18%" CBDT chairman SSN Murthy told ET. The figure will be announced by the month-end, he said. Back-of-the-envelope calculations suggest Indian companies have paid at least Rs 30,680 crore in the June quarter against Rs 26,000 crore in the year-ago period. Since the advance tax payment in the June quarter normally accounts for 15% of year‘s total, analysts say the corporate tax collection in 2010-11 may be around Rs 2,04,530 crore. An income-tax official, who did not wish to be named, attributed the surge in the June quarter‘s tax collection to higher profit of most companies, in the 10-30% range. Moreover, oil marketing companies which did not pay tax last year in the absence of receipt of payment from the government, paid advance tax this time, the official said. "In addition to oil companies, banks and pharmaceutical companies paid substantially higher tax, year-on-year," he added. Mumbai, which accounts for 37%-40% of the country‘s direct tax collection, has reported nearly 15% increase in tax receipts, and I-T authorities are hoping the combined direct and indirect tax collection will meet the target of Rs 4,30,000 crore this year. Last year, the collection was at Rs 3,75,000 crore. In the previous two financial years, tax collection fell short of target. In 2008-09, it was Rs 60,000 crore lower than the target, following the slowdown in the wake of the collapse of Lehman Brothers. Collection improved marginally in 2009-10, but it was lower than the revised target of Rs 4,00,000 crore. - www.economictimes.indiatimes.com

SALE OF UNDER CONSTRUCTION HOUSES TO ATTRACT SERVICE TAX FROM JULY 1[26 June 2010]

Those looking to book a house should do so before July 1. All sales of under-construction houses from July 1 will attract service tax with the finance ministry notifying tax on new services. However, service tax on rail freight has been further put off till January, 2011. The government has also exempted electricity distribution from service tax. The Central Board of Excise and Customs, the apex indirect taxes body, has issued several notifications related to separate areas to enforce the provisions of the Finance Act 2010. Sale of immovable property will be deemed to be taxable unless entire consideration is paid after the issuance of completion certificate by a competent authority. However, service tax will be levied only on 25% of the gross sale value of property . Low-cost housing under the Jawaharlal Nehru National Urban Renewal Mission and the Rajiv Awas Yojana have been exempted from service tax that will begin to be levied from July 1. Service tax on air travel has been capped at Rs 100 for domestic travel and Rs 500 for international travel. The government has exempted foreign travellers from service tax if they are in transit to a different country without passing the immigration and Customs area. Further, those flying to and from the Northeastern states -Arunachal Pradesh, Assam , Manipur, Meghalaya, Mizoram , Nagaland, Sikkim, Tripura and Baghdogra (in West Bengal)-have also been exempted from service tax. Sports events such as Indian Premier League will attract service tax but tax exemption has been allowed to tournaments and championships organised by certain bodies such as national sports federations or federations affiliated to them. These include School Games Federation of India, Association of Indian Universities and Olympic Committee of India, among others. The government has also exempted certain services that are provided within ports and airports from tax. These include supply of water, supply of electricity, medical treatment, formal education, fire service agencies and pollution control services. - www.economictimes.indiatimes.com

IRDA TO CAP REDUCTION IN YIELD ON ULIPs FROM SIXTH YEAR ONWARDS[26 June 2010]

Policy holders of Unit Linked Insurance Plans (ULIPs), who wish to pre-maturely withdraw can now be happy as their investment will soon have some protection. The Insurance Regulatory and Development Authority (IRDA) is planning to cap reduction in yield from the sixth year (of the policy) onwards, according to reliable sources. Earlier, the cap was applicable only at the time of maturity. If anybody pre-surrenders their policy, the return on the investment is dependent on the discretion of the insurer. The new norm, which will be announced shortly will in a way remove the earlier anomaly and make ULIPs more customer-friendly. "Further, the cap on charges will also ensure reduction in absolute level of commissions and their front-loading which is alleged to have been resulted in the miss-selling of ULIPs," said a source in IRDA. For a policy of ten-year tenure, the cap on reduction in yield could be at about three per cent with little variations. When implemented, the cap on charges will result in reduction of allocation charges to more than 6 per cent per annum on an average during the first five years. The insurers would, however, have the flexibility within these limits to charge higher amounts during the first year and lesser later so as not to exceed the cap, the source said. An official announcement on the new norm is expected in a couple of days. The reform of ULIP regulation has been on the agenda since January 2010 when IRDA had capped variation between gross and net yield. As of now, the difference between gross yields and net yields is at 3 per cent for 10-year products. Beyond 10 years, it could not exceed 2.25 per cent at present. After the beginning of the stand off with Securities and Exchanges Board of India over the jurisdiction of ULIPs, the Authority was more active in brining out changes in ULIPs norms. Last month, it said that all top-up premiums made during the period of contract in ULIPs should include compulsory insurance cover treating it as a single premium. It had allowed partial withdrawal only after fifth policy anniversary for all unit-linked products except pension /annuity products, among other changes. - www.thehindubusinessline.com

GOVT REVISES TAX INFORMATION EXCHANGE TREATY WITH 65 COUNTRIES[28 June 2010]

Government has approached 65 countries, including Switzerland and tax haven nations, to revise a tax information exchange treaty with them to include fresh details while sharing bank-related information of individuals and other entities. The finance ministry has initiated the move under the existing Double Taxation Avoidance Agreement (DTAA) as Indian tax authorities are looking to curb illegal stashing of money by individuals and others in foreign shores. According to top sources in the foreign taxation division of the finance ministry, the government is revising DTAAs to "specifically" provide for information on bank-related information, especially in certain "specific cases". "The bank-related data will enable Indian authorities to check tax evasion and illegal stashing of money in foreign shores by individuals and some other entities. The details on bank-related information is not properly addressed in the present DTAA," a senior finance ministry officer said. Under the present tax avoidance treaty, the "Union government may enter into an agreement with the government of any country outside India for exchange of information for prevention of evasion or avoidance of income-tax chargeable under this Act (Income Tax Act) or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or for recovery of income-tax under this Act and under the corresponding law in force in that country." Government is also in the process of setting up overseas tax units in countries like France, UAE, USA, Britain, Netherlands, Japan, Cyprus and Germany. Two such units in Mauritius and Singapore have already become operational. Currently, government has DTAA agreement with 65 countries. - www.economictimes.indiatimes.com

GEMS AND JEWELLERY INDUSTRY BODIES OPPOSE PROPOSED DTC[29 June 2010]

The national body for jewellery trade the All India Gems & Jewellery Trade Federation (GJF) and apex industry body Gems and Jewellery Industry (GJI) have opposed the proposed Direct Taxes Code. Both the industry bodies have also made representations to the Finance Ministry to seek modifications in the DTC. According to All India Gems & Jewellery Trade Federation (GJF) Chairman Vinod Hayagriv, "GJF strongly objects to two key issues of DTC, which includes search and seizure provisions and 10 per cent TDS on all payments." "GJF has more than 300,000 manufacturers, wholesalers and retail jewellers in India, which are already reeling under the effects of global recession. If our suggestions are not considered and necessary changes are not incorporated in the DTC, the proposed provisions will be highly detrimental to the operations of the assesses of the GJI and have the potential to adversely affect the very sustenance of such assesses," he added. The seizure of such stock-in-trade of jewellery, bullion and precious stones would create great difficulties for the assesses of the GJI as it would result into cessation of their manufacturing operations resulting into loss of sales and break down of their entire business activity. This is discrimination towards a single industry, such extreme measures are not applied in any other industry, so far. In case the amendments are not made in time, GJF shall call for a nationwide bandh (strike) and stall activities across the country, he said. "We also strongly oppose deduction of 10 per cent tax on all payments made for gold, diamonds, jewellery etc," former Chairman All India Gems and Jewellery Trade Federation Ashok Minawala said. PTI JD APR. - www.business-standard.com

SIX SEZs TO BECOME OPERATIONAL IN TN BY DEC[29 June 2010]

Six more special economic zones (SEZs) are likely to become operational in Tamil Nadu by December even though the proposed direct tax code seeks to withdraw tax sops to new units in the SEZs. "We expect six new SEZs to go on stream this year," a senior Commerce Ministry official said. The new SEZs that are expected to become operational in the state include a multi-service and light engineering SEZs at Kalpakam near here, a free-trade warehousing zone at Sripermubdur, a food processing zone at Tuticorin and a multi-product SEZ at Nanguneri. Of the 57 notified SEZs in Tamil Nadu, 11 non-IT SEZs and 10 IT zones are already operational. Exports from non-IT SEZs in 2009-10 was worth Rs 35,640.64 crore, while software exports totalled RS 8,152 crore. Following the release of first DTC draft last year, scores of SEZ units and developers had raised concerns that the zones were attractive due to the tax sops and their withdrawal would drive away future investors. According to the revised DTC draft, only existing units will get tax exemptions. "Any government rule affects business," Mahindra World City chief operating officer Sangeeta Prasad said. Mahindra World City near here, spread over 1,550 acres, has three sector-specific SEZs. However, Madras Export Processing Zone(MEPZ) development commissioner Ajay Mittal does not believe so. "Economic activities with or without tax incentives have been taking place and they will continue to do so," Mittal said, adding most of the units in the MEPZ are thriving without the benefits as their 10-year exemption period has already expired. The MEPZ came into existence in 1984, before the SEZ Act came into force. - www.business-standard.com

TDS RETURNS UNDER I-T DEPARTMENT SCRUTINY[29 June 2010]

Entities required to deduct tax while making payments could face a close scrutiny of their returns by the income-tax department as it gears to check payment defaults and boost collections. The I-T department is contemplating scrutinising TDS returns on the lines of income tax and corporate tax returns to ensure that those required to deduct tax at source are complying with the rules and depositing due taxes. "Enhancing collections from TDS is one of the focus areas for the I-T department," a department official said. The fact that collections rose to more than Rs 1,50,000 crore in 2009-10 as compared to Rs 70,689 crore in 2006-07 and now contributes nearly 40% of the total tax collections itself explains why the tax authorities are eyeing it as a focus area. The proposal, a part of the road map to strengthen the regime for TDS, figured at the annual conference of the chief commissioners and director generals. Scrutiny assessment usually involves a detailed examination of the returns filed so as to check the veracity of the claims, while normal assessment is cleared on the face value of the assessments. At present, selection of returns for scrutiny is computer-based. A closer scrutiny of the returns could help the department catch hold of those who have failed to deduct tax while making payments. The tax authorities have already begun to carry out extensive surveys to catch TDS offenders. A total of 8,828 surveys and inspections were carried out last fiscal. The I-T department had found a number of organisations, including some within the state sector as well, that deducted tax but did not deposit it with the department. In some cases it was also found that deductors were deducting tax at a lower rate. - www.economictimes.indiatimes.com

ALL GOVT SERVICES MAY GO ONLINE IN 28 STATES[30 June 2010]

Citizens across 28 Indian states will be able to avail all government services including payment of utility bills and applying for a driving licence, through common internet portals being developed as part of Rs 2,000-crore State Portal Project, senior government officials told ET. The government plans to develop portals for at least 10 states by October 2010, and the rest will follow suit. These state portals will offer services right from getting a birth or death registration certificate, to applications for pensions, to getting a domicile or residence certificate all online. The forms will be available and submitted electronically. "We expect many states to go live within six months. It will reduce redtapism and make delivery of services hassle free," said a joint secretary level official at the Ministry of IT & Communications. "Citizen service centre (CSC) kiosks, in rural areas, will help citizens who are technologically challenged submit these forms online," the official added. The government plans to rollout almost 10,000 more CSC kiosks, by December this year, taking the total number to 90,000. The portals will need about Rs 50-Rs 60 crore each to develop, said an egovernance business head of at one of the top Indian tech firms currently bidding for this business. Already, five IT companies, Accenture, Infosys, HP, Wipro, and 3i Infotech, have been empanelled as agencies for implementation of the project at the state level. KPMG, Ernst & Young, PwC, IL&FS and UTITSL have been empanelled as the consulting firms. The states may pick any of these agencies for implementation of the project. When portals go live, citizens would be able to query the status of his/her application at any point in time. Response will also be conveyed through SMSs or email or even displayed on portals. Initially, it may be limited to notifications like a licence or permit is ready to be picked up. But with time, all emailed printouts of licences/tickets may also be made legally eligible. The e-service delivery will have three main steps, citizens selects and fills the e-Form and submits it electronically. They will also get a unique ID generated by the system, to follow up on the status via email or SMS means. The portals would be available in their local language and English. Madhya Pradesh government has already gone live with its MP Online portal, a joint venture with Tata Consultancy Services. The state has tied up with Bajaj Allianz, Tata AIG and LIC, to enable their customers to pay insurance premiums online. Citizens can also recharge their mobile prepaid accounts online for Airtel, Tata Docomo, Tata Indicom and BSNL phones. They can also book private tours of state national parks like Kanha and Bandhavgarh online. Bhopal Gas victims can apply for free medical facilities, and state incentives online. "Our aim is to reduce direct interaction of citizen with government and encourage ‘e‘ -interaction," another ministry official added. - www.economictimes.idiatimes.com

NASSCOM TO PUSH FOR CHANGES IN DTC ON SEZs[30 June 2010]

Software lobby Nasscom will make a pitch to the government seeking continuity of tax benefits on SEZs in the Direct Taxes Code (DTC). It is scheduled to meet Government on Wednesday in this regard. The government had said in the DTC paper that while benefits would continue for existing units, it would be retired for units that came up after the DTC is implemented, in March 2011. Nasscom president Som Mittal who was in the city on Monday for an executive council meeting said that the SEZ policy should be continued to encourage the balanced regional development. "The DTC just simplifies things and gives the world a message that India is a country easy to do business with. Our software exports are around $60 billion and we have scope to expand it further. SEZs are one way of encouraging exports," he added. He added, "We created SEZs just a few years back and the policy should have continuity .SEZ is a great way to encourage investment not only in tier 1 but also in tier 2 cities. It is important for the government to take long term view on SEZs and it should be provided in the DTC on a continued basis and not grand fathered." He also noted that Nasscom is already preparing a paper in this regard and will present its views to the government. At the same time, a section of the industry feels that this norm in the DTC might lead to companies setting up smaller offices closer to the city. It might also lead to small and medium enterprises looking at tier-II towns to set up offices, without being constrained by the scale that an SEZ requires. "The sizes of IT companies are large; so u can‘t accommodate everyone is the city. It won‘t change the nature of business but this will be a positive move for small and medium businesses," said Mindtree CEO Krishnakumar Natarajan. According to the revised DTC draft, which will replace the Income Tax Act of 1961 after approval by Parliament, the tax exemptions for the SEZs would be provided only for existing units and not new units. Units set up in Special Economic Zones (SEZs) get 100 per cent income tax exemption on export income for the first five years and 50 per cent for the next five years. They also get exemption on 50 per cent of the ploughed back export profit for the next five years after the first 10 years. - www.economictimes.indiatimes.com

INDIA AGAINST BANK TAX, SAYS MUKHERJEE[24 June 2010]

Taxing the banks for future bailouts is only a "compromise formula", as a section of G-20 members, including India, is against any such levy, Finance Minister Pranab Mukherjee has said. "That was the compromise formula, because a section of the meeting that felt that there is no need of having any taxation as such," Mukherjee told PTI in an interview. He was referring to the Busan G-20 communique earlier this month where it was proposed that financial institutions contribute towards governments‘ measures to spur economies. "If there are well placed regulations that can take care of this problem. The health of the banks can be protected," Mukherjee said when asked if this issue would again be discussed in the G-20 Summit in Toronto on June 26-27. Asked what role he sees for India in G-20, Mukherjee said, "India has been a great stabilising force and it is the second fastest growing economy. Secondly, we have taken initiative for the reform of international financial institutions." "We are urging for the greater voice and percentage share of the emerging economies, which has been recognised by the enhanced capital increase in the World Bank and the International Monetary Fund," he said. The World Bank in April announced shifting of 3 per cent voting power in favour of developing countries, bringing their total stake to 47 per cent in the multi-lateral agency. India became the seventh largest shareholder in the World Bank following this shift. Finance Ministers and central bank governors of the 20 developed and developing countries met in South Korea on June 4-5 to find ways for the recovery of the global economy. Taking forward the finance ministers meeting, leaders of the 20 nations would meet in Toronto and would also discuss on reforming the regulation of the financial sector. - www.business-standard.com

I-T DEPARTMENT TO MONITOR NON-PAYMENT OF TAX ON EARNINGS FROM CARBON CREDITS[25 June 2010]

Corporate earnings from trading in certified emission reduction or carbon credits has caught the eyes of income-tax department. Tax authorities plan to closely look at companies found active in carbon trading after finding non-payment of taxes on such earnings. The issue was flagged at the recent conference of the chief commissioners and director generals of income-tax, a department official said. A scrutiny of data filed by a number of listed companies revealed that many of them were not including proceeds from the sale of carbon credits in their income while calculation income-tax liability. Field officers are expected to look into such cases of more closely. Though, tax authorities are gunning for companies for non-payment of taxes, lack of clarity on treatment of carbon credits is also an issue. Industry has for sometime lobbied for clarity on tax treatment of carbon credits. Presently, there is no clear definition in the tax laws about treatment of carbon credits. They can both be accounted for as capital assets or goods. Industry has pitched for treating them as capital assets and further exempting them from capital gains tax. If treated as goods the income generated from their trading is treated as business income attracting 30% corporate tax. "The tax treatment of receipts from sale of CERs will very much be driven by whether CERs are goods or intangible assets which is currently a grey area. The ICAI‘s exposure draft proposes to consider CERs as intangible assets but to be accounted for as inventories and that could be a possible reference point," said Amitabh Singh, partner, Ernst & Young. Under the Kyoto Protocol, companies from developing countries earn certified emission reduction (CER) or a carbon credit for each tonne of carbon dioxide emission they avoid. These carbon credits can be sold to companies or governments in developed countries that are under mandatory obligation to reduce carbon gas emissions. The buyers can then offset their own targets against the CERs they purchase from companies in developing countries under the UN‘s Clean Development Mechanism or CDM. Trading in CERs is a growing area that has generated huge interest in the country‘s corporate sector. According to estimates, the industry has already invested close to Rs 60,000 crore into projects that will generate more than four crore carbon credits by the end of 2012. A World Bank study has pegged the total global market size for carbon credits at $10 billion. - www.economictimes.indiatimes.com

RBI ISSUES NEW VALUATION NORMS FOR INSURERS TOO[25 June 2010]

Insurance companies will be required to adhere to the Reserve Bank of India‘s latest guidelines on pricing of shares of unlisted companies, increasing the amount investors would have to pay for buying into them. The central bank has taken up the issue with the insurance regulator, IRDA, after the latter had said the new rules will not apply to insurance companies. Irda is expected to clarify on the issue soon, said a government official privy to the development. A number of Indian promoters are believed to have entered into agreements with their foreign partners to allow them to increase their stake to 49%, as and when regulations allow. Foreign investment in insurance is capped at 26% but a bill proposing to increase the limit to 49% is with Parliament. According to the new RBI norms, shares of unlisted companies can be transferred at a price not less than the fair value, which is to be determined by a Sebi-registered merchant banker or chartered accountant as per the discounted free cash flow method. Under the earlier rule prescribed by the controller of capital issues, or CCI, fair value of an unlisted company was taken as average of the net asset value method and the profit earnings capacity value method. The new method is expected to yield a higher valuation as it would take into account the potential of the business as opposed to the accounting approach of the earlier methods. The change was particularly relevant for valuation of insurance companies, which have long gestation with initial years of substantial losses. However, in a clarification released last Thursday, Insurance Regulatory and Development Authority said RBI‘s guidelines dated May 4, 2010, are applicable to Indian companies in sectors other than the financial sector. "In view of the same, it is clarified that provisions of the said circular continue to be not applicable to the insurance sector", it had said. But with the RBI insisting that rules will apply to insurance as well, foreign investors will now be required to shell out more to their Indian partners under the cash flow method as valuations will go up. The move, however, will beget domestic insurance investors a higher value than what they had envisaged. The earlier method allowed investors to price their assets conservatively as it was based, particularly in the profit earnings capacity method, on the current performance. The new guidelines are aimed at removing any discretion in price-fixing and also reduce the chances of lower valuation under the earlier guidelines. The idea behind central bank‘s move was ascertain that Indian business getting transferred outside of the country receives proper consideration. - www.economictimes.indiatimes.com

MORE TIME SOUGHT FOR DISCUSSION ON DTC[25 June 2010]

The time offered for putting up public comments on the revised discussion paper on the direct tax code (DTC) is too inadequate to evoke proper response from people, say experts. The new draft code, which was released on June 15, has been put up for public comments till end June. "They have given a time period of just 15 days which is too inadequate to evoke response or for any sort of representations from people," said Mr Amitav Kothari, FCA, Managing Partner, Kothari and Company. The earlier discussion paper on the Direct Tax Code Bill was released in August 2009 for public feedback and inputs on the proposals. However, it drew criticisms from certain quarters for its proposals such as imposing a minimum alternate tax on gross assets and taxing long-term savings at the time of withdrawal. The new simplified tax code, which is likely to be introduced in Parliament in the forthcoming monsoon session, is expected to raise tax slabs and lift the ceiling for tax-free savings. The new DTC will replace the decades old Income Tax Act, 1961. Though the major issues have been addressed in the revised discussion paper, some of the minor issues have been left too vague, Mr Kothari said. - www.thehindubusinessline.com

SERVICE TAX ON RLY FREIGHT DEFERRED TO JAN 1[25 June 2010]

In what is seen as a bid to prevent further inflation spiral in the economy, the Finance Ministry has once again deferred the implementation of service tax levy on transport of goods by rail. The levy will now come into effect from January 1 next year.

Second time

The latest move has come in the backdrop of the wholesale price index-based inflation nearing double-digit level. This is the second time this year that the Finance Ministry had resorted to deferral of the proposal. The Government had in Budget 2010-11 proposed to bring transport of goods by rail in the service tax net from April 1. Its implementation was, however, deferred to July 1 in similar inflationary circumstances. Besides the postponement of the levy, the Finance Ministry has also now said that the earlier proposed exemption on certain goods (such as pulses, foodgrains, petroleum products for PDS, organic and chemical manure and motor vehicles) would now come into effect from January 1, along with the 70 per cent abatement. After the Budget announcement, the Railways had indicated that it would have no choice but to pass on the tax burden to its freight customers. A service tax levy on railway freight would have a cascading impact on coal, cement and steel prices, a section of industry had contended.

Railways performance

In the first two months of current fiscal, the Railways has generated Rs 10,044.54 crore revenue (up 8.99 per cent against the corresponding period last fiscal) by carrying 146.41 million tonnes freight traffic (up 3.37 per cent). This fiscal, the Railways expects to earn Rs 62,489 crore from freight transportation. The Finance Ministry was looking to garner close to Rs 1,000 crore from the service tax levy on railway freight. - www.thehindubusinessline.com

TAX LEVY ON 8 NEW SERVICES TO COME INTO EFFECT FROM JULY 1[25 June 2010]

The Finance Ministry has specified July 1 as the date from which service tax levy would be applicable on the eight new services brought under the tax net in Budget 2010-11. The eight new services include services of promoting, marketing or organising of games of chance, including lottery, health services undertaken by hospitals for employees of business organisation and health services provided under health insurance schemes offered by insurance schemes, services provided for maintenance of medical records of employees of a business entity and promoting a ‘brand‘ of goods, services, events and business entity etc.

New services included

The other new services include services provided by electricity exchanges and special services provided by builder to the prospective buyers such as providing preferential location.

Tax exemption

Meanwhile, the Finance Ministry has exempted from service tax the distribution of electricity by an authorised person under the Electricity Act. It has also given service tax exemption on construction services provided for Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana

25% abatement

The Revenue Department has also provided 25 per cent abatement on construction of complex services as well as commercial or industrial construction services. The abatement would not be available in cases where the cost of land has been separately recovered from the buyer by the builder or his representative. - www.thehindubusinessline.com

I-T DEPT TARGETS RS 3,379 CRORE IN UP DISTRICTS[26 June 2010]

The Income Tax (I-T) department is targeting a tax collection of Rs 3,379 crore during the 2010-11 financial year in Lucknow, which covers the Uttar Pradesh (East) districts. During 2009-10, the department made net tax collection of Rs 2,888 compared with Rs 2,614 during the previous year "Since we were able to achieve our target during the last financial year and posted a growth of over 10 per cent, we are confident of meeting our target during 2010-11," chief commissioner of I-T, Lucknow M K Mirani told newspersons here this evening. He, however, added the growth in UP (E) had been sluggish compared with the all-India growth of 18 per cent. UP has 3 IT offices at Lucknow, Allahabad and Bareilly headed by the respective commissioners. Besides, he said almost Rs 215 crore pertaining to the 2008-09 financial year could not be refunded to the tax payers and had been lying in the department‘s suspense account. "It could not be refunded, since the details of the tax payers with the department is not correct. Either the Permanent Account Number (PAN) is wrong or missing altogether, or the deductor had failed to complete the formalities," he said adding it was the duty of the assesses also to keep track of their tax. The department would soon launch a campaign to create awareness among the tax payers for tracking their I-T deduction and refund procedures online. - www.business-standard.com

FICCI SEEKS CUT IN DIVIDEND DISTRIBUTION TAX[28 June 2010]

The Federation of Indian Chambers of Commerce and Industry (FICCI) has called for reduction in the rate of dividend distribution tax (DDT) to 10 per cent from the current 15 per cent. DDT is a tax whose incidence falls at the level of the domestic company declaring, distributing or making the dividend payments.

double taxation

As dividends are distributed out of after tax profits, levy of DDT on such payments tantamount to double taxation, FICCI said in a statement here. Even as DDT is forked out by the domestic company, it is seen as indirectly taxing the shareholders as it would reduce the effective returns to them. The DDT could be burdensome, especially if companies operate on a multi-layer pyramidal structure - a common occurrence in corporate India.

split-kind system

FICCI has, therefore, "pleaded" for a "split kind of system" wherein the DDT is levied only on payments made to domestic shareholders. A withholding tax should be levied on the dividend payments made to foreign shareholders, the chamber has suggested. This would also enable the foreign shareholders to claim tax credit in their home country, the chamber has said.

no tax credit

Currently, no tax credit can be availed by foreign shareholders as the incidence of DDT is on the company making such payments and not on the shareholders - either domestic or foreign shareholders. FICCI is of the view that the cost of doing business in India could come down if the DDT (in respect of payments made to foreign shareholders) is replaced by a withholding tax. - www.thehindubusinessline.com

FM-CMS MEET HARPS ON GST ROLLOUT[29 June 2010]

Finance minister Pranab Mukherjee has intensified back-channel contact to states to bring them on a common ground on Goods and Services Tax (GST)-the indirect tax proposal he wants to make a reality by April 2011. After meeting the eastern states‘ chief ministers in Patna in May, the FM met chief ministers of western and central states in Mumbai on Monday. While the finance ministry said the meetings worked on financial inclusion, sources in one of the state secretariat said GST was the big topic for debate between Mukherjee and the chief ministers. The Centre and the states have already resolved many issues like the base of the tax, which in turn will determine rates.There are apprehensions that many states still feel the roll-out of the new tax regime from April 2011 may not be possible. Revenue loss with the proposed tax and the consequent compensation formula is the other major issue. The Centre has, however, promised to compensate states in full for any revenue loss that they may incur due the new tax. The states and the Centre are believed to have come on a common ground with regard to commodities like petroleum products, alcohol, natural gas and octroi that may remain out of the GST net. There are many levies in the states ambit that still remain to be decided upon. Consensus has been hammered out on many of the structural issues as well, like a common threshold limit for exemption and dual rate. The list of exempt items to usher in the indirect tax regime of GST also will be pruned. The list could be smaller by as much as possible from the current 350 items. - www.financialexpress.com

IFRS MIGRATION CAN MAKE INDIA AN

Come 2014, the US will align its accounting practices with the International Financial Reporting Standards (IFRS) - a system of harmonised standards recommended by the International Accounting Standards Board, an independent body of the International Accounting Standards Committee Foundation. Over 100 countries mandate that companies operating on their soil conduct financial reporting in accordance with IFRS. India is to get on to the IFRS regime in a phased manner beginning next year. The US, which follows its own system - the US Generally Accepted Accounting Practices - will migrate to IFRS from 2014.

Huge biz opportunity

Experts see a huge business opportunity for Indian BPO firms in this migration. Mr Dolphy D‘Souza, IFRS Leader, India - Ernst & Young Pvt Ltd, said the vast number of companies in the US in itself gives birth to a need for outsourcing work related to the migration. The US does not have enough resources to migrate to IFRS on its own, he told Business Line on Monday. "A large chunk of work will come to India." But even after the migration exercise is over, Indian BPOs would enjoy business opportunities in terms of "lot of bookkeeping work". India, Mr D‘Souza said, could become the "accounting hub" of the world. Mr Som Mittal, President, Nasscom, concurs with this view. He said that any compliance issue in the developed world would potentially lead to business opportunities for Indian BPOs. Mr Mittal sees India doing more and more of value-added work (such as IFRS-related). Nasscom study states that in the three years to 2009, revenues of Indian BPOs grew 30 per cent, while the headcount grew only 20 per cent. - www.thehindubusinessline.com

SEBI EASES REPORTING REQUIREMENT FOR FIIS[30 June 2010]

Market regulator Sebi today relaxed the reporting requirement on lending of securities by FIIs for the purpose of short selling. FIIs now have to disclose the information on a weekly basis instead of daily. However, foreign institutional investors (FIIs) issuing participatory notes (PNs) will have to immediately report their short position. PNs are instruments through which unregistered entities in India invest in stock markets while short-selling means selling of borrowed shares at high prices with the intention of repurchasing them in the future when the prices fall. "It has been decided to modify the periodicity of these reports from daily submissions to weekly submissions...The FIIs shall now be required to submit the reports every Friday," the Securities and Exchange Board of India said in a circular. The circular becomes effective from July 2. However, analysts feel the new requirements will not have much implications as the securities lending market is not very mature in India. Securities lending means a brokerage lending securities owned by its clients to short-sellers. As per the data available on the National Stock Exchange, daily data on the Securities Lending and Borrowing (SLB) segment shows little action. "It really does not make any difference as to whether the data is submitted on a daily, weekly or quarterly basis as hardly any trade is executed in SLB segment in India," SMC Capitals Equity Head Jagannadham Thunuguntla said. However, in other countries, such as the US, where the securities lending is a big market, the order would have made a difference, he said. The market regulator said that public dissemination of the disclosure by FIIs will be made twice in a week -- on Tuesday and Friday. - www.business-standard.com

E-FILING OF CENTRAL EXCISE, SERVICE TAX[30 June 2010]

The Institute of Company Secretaries of India (ICSI) has entered into a memorandum of understanding with the Central Board of Excise and Customs (CBEC). This would enable company secretaries to set up Certified Facilitation Centres (CFCs) under the Automation of Central Excise and Service Tax (ACES) project, which will facilitate e-filing of returns and other documents by assessees of Central Excise and Service Tax. CFC is a facility, other than the physical front offices or facilitation centres of CBEC, which may be set up and operated by a practising company secretary to whom a certificate is issued under the ACES project, where the assessees of Central Excise and Service Tax can avail themselves of the facility to file their returns and other documents electronically along with associated facilitation on payment of specified fees. - www.thehindubusinessline.com

SERVICE TAX TO GO ON SELECT OPERATIONS WITHIN AIRPORTS[30 June 2010]

From July 1 this year, no service tax will be levied on taxable service of commercial or industrial construction provided wholly within the airport. Similarly, the taxable service of commercial or industrial construction, when provided within the port or other ports for construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways, will also not be levied a service tax from the beginning of July. According to a notification issued by the Central Board of Excise and Customs, taxable service provided in the port, other port or airport by a cargo handling agency in relation to agricultural produce or goods intended to be stored in a cold storage as also taxable service in relation to transport of export goods in an aircraft by an aircraft operator will also not have to pay service tax. - www.thehindubusinessline.com

LIQUIDITY CRUNCH ON ACCOUNT OF ADVANCE TAX PAYMENTS IS TEMPORARY: BHASIN PART 1 [22 June 2010]

The advance tax payment of about Rs 30,000 crore during June will not impact liquidity of banks in a big way. If at all, it will be a temporary liquidity crunch, and money will come back into the system, says Mr T.M. Bhasin, Chairman and Managing Director, Indian Bank, in an interview to Business Line. Excerpts:

How much would advance tax payments cause a dent on liquidity for banks? What would be the impact for Indian Bank?

The expected amount of payment for banks is about Rs 25,000 crore-30,000 crore. For Indian Bank, it is about Rs 800 crore. But it is only a temporary liquidity crunch. You cannot call it a crunch; you can say that this amount of liquidity will be out from the system. But again it will be back into the system; it‘s a matter of a few days. It won‘t be static in a particular dormant account. You can expect it to be a 7-10 day cycle.

What are your comments on the base rate system?

Banks have now realised that it is not wise to lend at rates of interest even lower than the cost of deposits. The base rate will boost the profitability of the banks and below cost-of-funds loans will be automatically re-priced to the base rate, which is being quoted by various banks according to their own costing formula. At Indian Bank, we have worked out our own, but we will declare it in the third week of June, because we want to see how other banks are doing it. We are in constant touch with them. Our basic aim is to protect our turf. Unnecessarily cost should not increase for our customers and we should also not suffer in the process so that our profitability is hit. We will take a balanced and cautious view. But we are ready.

It is stated that the Euro crisis might see increased remittances into India. What is your opinion?

It will bring FDI and inflow from Indians into the Indian banking system. It cannot be quantified, it‘s a volatile situation. This should improve the confidence of people in the Indian banking system, that‘s how we predict that some money might flow into the Indian banking system because it is a more stabilised and robust system.

Is the improvement in CASA ratio trend continuing?

We have already, in the 70-day period this fiscal, garnered Rs 1,050 crore worth Current Account Savings Account (CASA). There has been a consistent increase in CASA because of good customer service. Similarly, current accounts are also increasing; however they are fluctuating, still there is an accretion.

What will happen to banks if people decide to shift to term deposits?

We have taken a conscious decision to give 3.5 per cent for fixed deposits up to 90 days. For savings bank account also, we give 3.5 per cent. So, the customer will not lose on both these instruments. Our Board has decided to save unnecessary bother to the customer, and also it saves cost for the bank (in terms of issuing receipt, trer from account to another etc).

How is the credit demand now, for banks and Indian Bank in particular?

Credit demand for all the banks in various sectors is going on according to schedule. There are a lot of sanctions in hand, which are now being availed of by corporates. Most of the banks have lent for infrastructure, corporate, and SMEs. Indian Bank has disbursed Rs 1,500 crore in the past two months, which has gone across various sectors. So it is a diversified credit portfolio. This year, our plan is to increase the loan book by 22 per cent. Our loan book is Rs 66,000 crore as on March 31, 2010, which will go up by about Rs 15,000 crore for the year as a whole. So it will be a Rs 81,000-crore loan book as of March 31, 2011.
contd......

LIQUIDITY CRUNCH ON ACCOUNT OF ADVANCE TAX PAYMENTS IS TEMPORARY: BHASIN PART 2 [22 June 2010]



What is your exposure to the real estate sector?

Our exposure is around Rs 2,000 crore only. They are progressing well, and fortunately no non-performing assets (NPAs) there.

How about your NPAs?

We have a restructured loan book of about Rs 5,200 crore, out of which Rs 2,000 crore is already out of the one-year period, and all the loans have been doing well. And NPAs, out of this restructured loan book is, about Rs 39 crore, which is less than 0.7 per cent. We have set up a credit monitoring cell at the head office, which watches the conduct of each of the restructured account. The cell is in touch with circle heads and also branch managers to ensure that instalments and interest are recovered on time. We have an online tracking system for these restructured accounts and other loan accounts also. Wherever there is a 30-day overdue, there is an alert to the concerned circle head and branch manager to recover the overdues, so that it doesn‘t fall into the Special Measure Account, which we start from 30 days onwards, so that it doesn‘t touch the 90 days period and fall into NPA category.

With net profits taking a hit, it is learnt that some banks are now opting for austerity measures. What is your bank‘s strategy?

Austerity measures are a continuing process. As far as the Indian Bank is concerned, our net profit has gone up from Rs 1,245 crore last year to Rs 1,555 crore this year, which is around 24 per cent growth. As it is, there is no crunch or pressure or decline on net profit. But there is a slight extra payment of around Rs 213 crore on the increased rate of interest on savings bank and Rs 20 crore which is the Cash Reserve Ratio increase of 25 basis points. We are wary of the situation and we are taking steps to avert unwanted expenditure. Some banks have gone in for bank restructuring, gone slowly on branch expansion, etc. But we have seen that if we open more branches, win more customers and bring more business, and bring more profitability that is a better way. We are a mid-sized bank so we can grow faster and better. All over, our managers are conscious of cost also, and wherever I go, I make sure there is control on costs.

Public holding in the Indian Bank is 20 per cent. When do you plan to increase it to the Government-stipulated 25 per cent?

As on date, the Government has 80 per cent stake in our bank. We had issued the shares at the price of Rs 81 plus Rs 10 (Rs 91) four years ago. Today, it is trading at Rs 225. If we come out with a follow-on public offering (FPO), then it benefits both the bank and investors. Because the FPO comes at a particular price, according to SEBI guidelines, and if the price remains good, then we can take good share premium, and it goes to our tier-I capital directly. Secondly, the additional customers will get an opportunity to get the capital of the bank. As on date, it is 80 per cent. If te Board decides to dilute the equity according to the government‘s guidelines, which are still awaited in detail, we will go in line with the guidelines. The Board will decide whether it will be rights or FPO, and the pricing will be decided according to SEBI guidelines. - www.thehindubusinessline.com

FINMIN MAY TAG STT WITH CAPITAL GAINS TAX [19 June 2010]

The finance ministry today said it might tag the securities transaction tax (STT) with the capital gains tax, or continue to levy it in its existing form. "We will calibrate it later on. Whichever is convenient to revenue, whether to continue STT or tag it on to capital gains tax, that call we will take," Central Board of Direct Taxes Chairman S S N Moorthy told reporters. The revised discussion paper released on the Direct Taxes Code (DTC) on Tuesday had said that STT is a tax on specified transactions and not on income, and thus it would be adjusted in accordance with the revised rate of taxation on capital gains. At present, STT is levied at 0.010 per cent per transaction in the derivatives market. "Accordingly, STT is proposed to be calibrated based on the revised taxation regime for capital gains and flow of funds to the capital market," the paper had said. Asked why STT is proposed to be retained along with the long-term capital gains tax, Moorthy said STT is a different arrangement than the capital gains tax. "STT is a different legislation. It is not part of the Income Tax Act per se. It is a separate arrangement, so we have kept it as it is. Let us see how we are going to calibrate the capital gains tax, then we will take a call on STT," he said. - www.business-standard.com

SECURITIES TRANSACTION TAX RATE HINGES ON CAPITAL FLOW [19 June 2010]

The securities transaction tax (STT) is here to stay even under the proposed new regime for direct taxes slated to come into force from April 1 next year. But the rate of STT now hinges on the firming up of a revised taxation regime for capital gains and the flow of funds to the capital market, a senior Finance Ministry official said. A new regime for taxation of capital gains has been proposed in the revised discussion paper on Direct Taxes Code released on Tuesday. "When we say calibration in the revised paper, we mean that the rate of STT would be decided based on the flow of funds into the capital market and also how the revised regime on capital gains is finalised," Mr S.S.N. Moorthy, CBDT Chairman, told Business Line here. He said that the Central Board of Direct Taxes does not yet have a view on what the STT rate should be. In the revised discussion paper, the Finance Ministry has proposed that STT would be levied under the new Direct Taxes Code. This is in variance to the position in the first discussion paper released in August 2009 wherein it was mentioned that STT would be done away with. The STT was sought to be abolished as the DTC had proposed to bring all capital gains to taxation as normal income while removing the distinction between long-term and short-term capital gains. Now, in the revised paper, the Finance Ministry has proposed to withdraw the tax exemption on gains from transfer of listed shares/units of equity schemes held for more than one year. Under the proposed regime, a deduction will be allowed at a specified percentage of gains, in respect of gains on transfer of listed equity shares/units of equity oriented funds held for more than one year from the end of financial year in which they were acquired. No indexation would be allowed. The adjusted capital gain after deduction will be taxed at applicable rates. The specified percentage of deduction will be finalized in the context of overall tax rates. The CBDT is now going in for the middle path by retaining STT (but calibrating the rate) and at the same time partly bringing to tax the capital gains made from transfer of listed shares held for more than a year, say tax experts. - www.thehindubusinessline.com

CHANGE IN PERSONAL I-T RATES UNLIKELY [21 June 2010]

The finance ministry is likely to retain the existing rates of 10 per cent, 20 per cent and 30 per cent on personal income tax while calibrating the tax slabs suggested in the draft Direct Taxes Code (DTC). Senior officials in the ministry told Business Standard the rate of taxation would remain the same in the final version of DTC. "The idea of DTC is to make the tax structure simple. We believe the taxation rates of 10 per cent, 20 per cent and 30 per cent are the simplest for taxpayers, as well as tax authorities. If we try to tax the income at 5 per cent, 15 per cent, 25 per cent, or any other rate, it could become complicated," said an official. Another said the country had these rates for the past several years and would continue to have the same in the future as well. He said any tinkering with the rates was not required when the purpose could be served by adjusting the tax slabs in line with the government‘s revenue considerations. While the rates of taxation have remained static over the years, income tax slabs were revised upwards twice in 2009-10. Presenting the first Budget of UPA-II in July 2009, finance minister Pranab Mukherjee had widened the slabs. The revised slabs were Rs 1.6-3 lakh, Rs 3-5 lakh and above Rs 5 lakh. In a surprise move, he further increased the slabs in the Budget in February 2010. At present, a taxation rate of 10 per cent is levied on income between Rs 1.6 lakh and Rs 5 lakh, 20 per cent on income between Rs lakh 5 and 8 lakh, and 30 per cent on income above Rs 8 lakh in a financial year. The DTC draft unveiled last year proposed a larger widening, with the first slab in the range of Rs 1.6 lakh-10 lakh. The code did not propose any change in the rate of taxation. It suggested 20 per cent tax on income between Rs 10 lakh and 25 lakh and 30 per cent on income above 25 lakh. The revised discussion paper on DTC is silent on tax slabs. It said the indicative tax slabs and tax rates proposed in DTC would be calibrated accordingly while finalising the legislation. The finance minister and ministry officials have maintained that rates would be part of the DTC legislation, slated to be introduced in the upcoming session of Parliament. "The rates should remain the same initially and be gradually brought down to, may be, 20 per cent," said Divya Baweja, head of personal taxation at BMR Advisors. He said other countries either have high rates and high slabs or low rates and low slabs. "India falls somewhere in the middle," he added. In most countries of the world, the highest rate of personal income tax had remained the same in the last few years. Since 2003, countries like the US (35 per cent), the UK (40 per cent), Argentina (35 per cent), China (45 per cent), Greece (40 per cent), South Africa (40 per cent) and Taiwan (40 per cent) had not changed their rates, showed a study by consultancy firm KPMG in 2009. - www.business-standard.com

I-T DEPT TO DEMAND RS8,500 CR TAX OVER TRANSFER PRICING [21 June 2010]

The Income Tax department is likely to slap a demand of Rs8,500 crore on foreign companies and their domestic subsidiaries which allegedly transferred profits to other countries to reduce tax liability. "Income Tax department is likely to raise over Rs8,500 crore from transfer pricing audits. There has been scrutiny of 8,105 such cases," finance ministry sources told PTI. Transfer pricing deals with the technique where parent companies sell goods and services to subsidiary entities at an inflated price to deliberately reduce profits and tax liability. The law requires that goods and services should be sold to subsidiary companies at arm‘s length price -- the price at which goods are traded between unconnected companies. Taxing these 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. The sources further said that in the last five years, such tax saving cases have increased rapidly. To prevent a loss in revenue through the transfer pricing route, the department is planning to notify Safe Harbour Rules soon. The new rules will layout norms to prevent revenue loss through this route. "The Income Tax department is planning Safe Harbour Rules to lay down parameters where these adjustments will not be made. It is to be notified shortly," a finance ministry official said. The revenue department would also focus on intangibles such as marketing intangibles, supply chain intangibles, research and development intangibles and patents intangibles, among others, while scrutinizing revenue losses. "These cases will be selected by the Income Tax department to raise revenues from companies which have violated the norms. It would be our focus area," the official said. - www.livemint.com

IRDA CHAIRMAN TO FRAME NEW GUIDELINES ON ULIPs [22 June 2010]

After winning the turf war with market watchdog SEBI on ULIPs, insurance regulator IRDA today said it would frame new guidelines for these products to make them more attractive for policy holders. "Certainly, yes," Insurance Regulatory and Development Authority (IRDA ) chairman J Hari Narayan told PTI when asked whether the insurance regulator would unveil new guidelines for ULIPs to make them attractive for investors. The government has ended the turf war between IRDA and SEBI, saying unit linked insurance plans (ULIPs) will be regulated by IRDA. On Friday night, President Pratibha Patil issued the Ordinance, explaining that the life insurance business shall include any unit-linked policy or scrips or any such instruments. The government has also constituted a high-level committee chaired by Finance Minister Pranab Mukherjee, which will sort out all issues of jurisdiction regarding hybrid products. - www.pti.com

COMMERCE DEPARTMENT TO OPPOSE DRAFT TAX CODE ON SEZ UNITS [17 June 2010]

The commerce department is set to oppose the finance ministry‘s proposal for withdrawing tax exemptions for new industrial units coming up in special economic zones (SEZs) after the direct tax code is implemented the next fiscal year. The revised draft code also proposes to replace tax exemptions with sops on investments made by developers, which will lead to drying up of investments in SEZs, an official in the government said. Officials in the department felt that the revised draft tax code, circulated on Tuesday, does not address several concerns raised by it. The department was expecting the second draft to be more SEZ-friendly than the first one. The finance ministry had put up the first draft code for public debate in August 2009. Based on the feedback from other ministries and the industry, it revised the draft on Tuesday. "If the taxation laws for SEZs are changed, you can totally write-off the policy which has contributed significantly to exports and created six lakh jobs over the last four years," a commerce department official told ET. Tinkering with a policy in the third year of its existence does not reflect well on the investment environment of a country, he added. While the second draft has clarified that both SEZ developers and units that start operations before the DTC is implemented on April 1, 2011 will continue to get tax exemptions on profits for the remaining years of the exemption period, the rules would be different for SEZs and units that come up after that. Under the SEZ Act, industrial units get 100% tax exemption on profits earned for the first five years, a 50% exemption for the next five years and another 50% exemption on re-invested profits in the following five years. SEZ developers, on the other hand, get 100% tax exemption on profits for ten years which they can choose in the block of the first 15 years. According to the proposal, developers of SEZs will get sops based on investments made in the zone instead of getting exemptions on profits earned. "The scenario is even worse for SEZ units as there is no provision for continuation of tax exemptions for them beyond April 1, 2011 in the new draft," points out SEZ expert Hitender Mehta. This is bad news for SEZ developers that have put in money in the zones and are expected to start operations as they may not be able to attract units. This would also result in lot of rush by corporates to establish operating units in SEZs before March 31, 2011, according to KPMG executive director Hemal Zobalia. The changes in the tax regime, if executed, could cut down tax benefits enjoyed by SEZs, especially in sectors like IT where investments are low. They may also attract minimum alternative tax (MAT) of 18% as the proposed DTC has no provision of giving any sector exemption from MAT, Mr Mehta pointed out. "While the law may allow such changes in tax provisions, it is kind of a breach of trust on the part of the government as the SEZ policy attracted investors on the basis ofcertain promises made," the commerce department official said. In 2009-10, goods and services exports from SEZs was worth Rs 2,20,000 crore, 122% higher from the previous year. The government has formally approved the setting up of 574 SEZs, of which more than 100 have started operations. - www.economictimes.indiatimes.com

TOP 100 COS PAY 19% MORE TAX [17 June 2010]

The country‘s top 100 companies, led by ONGC and Reliance Industries, have paid Rs 12,661.73 crore in advance tax to the government in the first quarter of this fiscal, representing an 18.68 per cent jump over the same period last fiscal. But some large corporates like State Bank, Grasim Industries, ACC, Ambuja Cement, Siemens, Deutsche Bank, Barclays Bank, and Bank of America, paid less tax to the Exchequer compared to the year-ago period, according to the finance ministry sources. ONGC has paid the highest tax at Rs 1,093 crore, up 24.20 per cent from Rs 880 it had paid in the first quarter of the last fiscal, the sources said. Reliance Industries‘ tax outgo stood at Rs 653 crore this quarter, more than double the Rs 314-crore it had paid in the same period last fiscal. This is followed by the country‘s largest lender SBI which has paid Rs 869 crore, which is a steep 18.63 per cent less than Rs 1,068 crore it had paid in Q1 last fiscal. However, the bank comes up as the second largest tax payee. Mirroring an uptick in the economy, corporate India‘s advance tax payments have jumped sharply in the April-June quarter of this fiscal. The tax payments are in line with industrial production, which zoomed by 17.6 per cent in April, the first month of the current fiscal, from 1.1 per cent in the same period a year ago. The GDP during the current fiscal is estimated to grow by 8.5 per cent from 7.4 per cent last fiscal. The indirect taxes mop-up, which include Customs, Excise and service tax, too went up by 49 per cent to about Rs 35,000 crore during April-May 2010-11. The government proposes to collect Rs 3.01 lakh crore as corporate tax during the current fiscal, up from Rs 2.5 lakh crore in the previous fiscal. - www.financialexpress.com

FINMIN FINDS TAX EXEMPTION RECOMMENDATION BALANCED [17 June 2010]

A day after releasing a revised draft of the direct tax code (DTC), the finance ministry on Wednesday said its recommendations on exempting retirement savings are balanced and would not entail loss of revenue."EEE (exempt-exempt-exempt) is only for limited number of saving instruments. It (recommendation) is balanced," said revenue secretary Sunil Mitra when asked about the rationale of watering down the original proposals.Under EEE mode, contributions in certain savings schemes become tax-exempt as it is deductible from income, the accumulations are also exempt from tax till it remain invested and withdrawals are also not taxed. However, in EET, the first two steps remain tax-exempt, but withdrawals are taxed.On the impact of the recommendations on revenue, he said, "Tax collection will increase or not it will all depends on rates. The rates we have not put just now. That will go in the legislation."In the revised draft taxes code, which will replace the 50-year-old Income Tax Act, the finance ministry decided to drop its earlier proposal to tax the government provident fund or the public provident fund withdrawals.The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode.The revised draft also puts pensions administered by the interim regulator PFRDA, including pension of government employees who were recruited since January 2004, under EEE treatment.The government plans to introduce a draft legislation on the DTC in Parliament in the forthcoming monsoon session."If Parliament procedure is complete and it becomes a law, it will be implemented from April 1, 2011," Mitra said on Tuesday. - www.livemint.com

MOUNT PRESSURE ON POLICYMAKERS TO IMPLEMENT GST: MUKHERJEE [17 June 2010]

Finance minister Pranab Mukherjee today urged the trade and commerce fraternity to mount pressure on policy makers for smooth implementation of Goods and Service Tax (GST) in a committed time frame. Speaking at annual installation ceremony of the South Gujarat Chambers of Commerce here, Mukherjee said, "Change in the present system to a new one is bound to find resistance." "I urge the trade and commerce fraternity to mount pressure on policy makers for smooth convergence which would lead to implementation of GST in a committed time frame," the Union Minister said. Mukherjee said the government was committed to implement Direct Tax Code (DTC) from April 1, 2011 by ensuring total support from all the stake holders. He said the government was committed to materialize economic progress of the nation based on inclusive growth strategy which aims to ensure equal distribution of income, opportunities and wealth among the common citizens. Mukherjee said a good monsoon will recover the growth momentum to achieve the target set during the budget, as the economy remained under pressure due to vagaries of weather and recessionary pressures emanated from the world economy, last year. The minister also said India has achieved comfortable level in Foreign Direct Investment by crossing a $20.9 billion mark. - www.economictimes.indiatimes.com

NO PENALTY FOR UNSUPPORTED I-T DEDUCTION CLAIMS: DELHI HC [17 June 2010]

The Delhi High Court has held that an entity seeking tax deduction cannot be penalised just because it has not supported the claim with documents in its annual return. The judgement was passed on a petition filed by the Income Tax Department, seeking imposition of penalty on the Industrial Finance Corporation of India Limited (IFCI) because it had allegedly furnished "inaccurate particulars" of income to claim tax deduction. "It is a case where a claim put forth by the assessee (tax payee) as regards the loss was not accepted, but that would not per se tantamount to furnishing any kind of inaccurate particulars. Thus, in our considered opinion, there has been no concealment of income or furnishing of inaccurate particulars," a bench comprising Chief Justice Deepak Mishra and Justice Madan B Lokur said. Earlier, the IFCI‘s stand was rejected by the assessment officer on the grounds that it had made certain claims by way of business expenditure in the annual return, but was unable to substantiate them. The financial institution had contended that as all the details pertaining to the computation of income were disclosed in its annual tax return, the matter could not be treated as a case of concealment or submission of false particulars. The Income Tax Tribunal, however, accepted the plea of the financial institution and held that there had been no furnishing of inaccurate particulars of income and the assessee had declared everything in its annual return. "In the case at hand, the assessee (IFCI) had filed the return and furnished all the particulars. The IFCI explained during the penalty proceedings that the investments were written off in the books of account and were claimed as deduction on account of the loss occurred to it in the computation of the total income," the court noted. It also rejected the I-T Department‘s contention that it was obligatory for the assessee to prove that there was no fraudulent intention on its part for allegedly filing inaccurate particulars of income. - www.business-standard.com

LIFE INSURERS TO SEEK TAX PARITY FOR ULIPs [17 June 2010]

The Life Insurance Council, along with industry representatives, will meet members of the Central Board of Direct Taxes next week to press for standardisation of the tax structure of unit-linked polices (ULIPs) vis-à-vis pure life policies, according to Mr S.B. Mathur, Secretary-General of the Council. At the meeting, the Council would advocate bringing ULIPS under the purview of the EEE (Exempt Exempt Exempt) method of taxation at par with the recommendations in the revised discussion paper on the Direct Taxes Code (DTC) for approved pure life products and annuity schemes, he said. The revised paper has proposed to retain ULIPs under the EET (Exempt Exempt Tax) method, thus making the policies less tax-saving than traditional products. Addressing media persons on the sidelines of a conference here on Wednesday, Mr Mathur said: "We will make a representation to the tax Department next week, asking for parity in tax treatment between ULIP and pure life policies. Barring the fact that the equity investment component in ULIPS is higher than in traditional policies, there is fundamentally little difference between the two products." The council was also lobbying with the Insurance Regulatory and Development Authority (IRDA) to work out modifications in the recent norm of bundling life covers with pension plans, Mr Mathur said. The modifications demanded by the Council included making the mandate applicable to policy holders below certain age, say 15 years old, he said. There could also be an option of bundling health cover in place of life cover, he added. - www.thehindubusinessline.com

HRA NOT A RIGHT BUT A COMPENSATORY ALLOWANCE: HC [18 June 2010]

A government employee is not entitled to claim house rent allowance (HRA) as a matter of right, the Delhi High Court has held, saying that it is compensatory allowance paid in exchange of accommodation facilities. "HRA is not a part of pay but is a compensatory allowance in lieu of accommodation... and is not to be used as a source of profit. The moment the amenity is provided or offered, the employees should cease to be in receipt of the compensation which is given for want of it," Justice Rajiv Sahai Endlaw said in a recent judgement. The High Court passed the order on a petition of MCD challenging the order of an Industrial Tribunal to pay HRA to its employees even though they were residing illegally in the premises owned by the civic body. Justice Endlaw said that HRA is not a part of salary but is a compensatory allowance which is paid in lieu of accommodation and is not to be used as a source of profit. He also said that earlier the apex court had also set aside the Central Administrative Tribunal‘s order which had held that HRA is a part of wages. Highlighting the challenges faced by the government in providing accommodation facilities to its employees in view of acute shortages of such facilities, the court said that the employer should not be overburdened. "Whenever accommodation is offered to the employees, the employees have either to accept it or to forfeit the HRA and the management cannot be saddled with double liability viz to construct and maintain the quarters as well as to pay the HRA," it said. It also allowed the civic body to evict the erring employees from the premises or recover rent or damages for use of accommodation if it was found to be in excess of the HRA entitlement under the law. - www.economictimes.indiatimes.com

NON-LIFE INSURERS TO SEEK WITHDRAWAL OF CAPITAL GAINS TAX [18 June 2010]

The general insurance council will meet the Central Board of Direct Taxes (CBDT) officials on June 23 to seek a withdrawal of a proposed capital gains tax in the direct tax code, released on Tuesday. The revised draft has proposed capital gain tax on income from equity investment of non-life insurance companies. If the proposal is implemented in the current form, it will result in around 20-25 per cent reduction in profit after tax (PAT) of non-life insurance companies. "Profit made on sale of investment will be taxable now, which has become a matter of concern before us. It is all set to have its impact on our PAT," said M Ramadoss, Chairman and Managing Director New India Assurance on the sidelines of Skoch summit. The largest non-life insurer New India Assurance saw an income of Rs 1,000 crore to Rs 1,200 crore from sale of investment as on March 31. Ramadoss said they would have to pay 20 per cent of PAT as capital gain tax. Similarly, United India Insurance saw Rs 900 crore coming from its investment income. But huge underwriting losses had brought down its PAT. However, since most of the general insurers are still reeling under huge underwriting losses, the rules may not hit them immediately. Public sector insurers expect to write off their accumulated underwriting losses in another two-three years. "We will not be affected by this for next 2-3 years as we have got our accumulated underwriting losses right now," said United India Insurance Chairman and Managing Director G Srinivasan. Insurers attribute underwriting losses to competition in the market which results into ridiculous pricing. Post de-tariffing in 2007, rates on fire and engineering have fallen by almost 90-95 per cent. Insurers, however, said now things are changing as the discounts have seen a fall in the current financial year. "We are pricing risk on a case to case basis. In certain cases, we have raised the premium even by 100 per cent depending on our past claim experiences. There is a 5-10 per cent correction in the fire and engineering segment," said Srinivasan. - www.business-standard.com

REVISED TAX CODE GIVES FILLIP TO PENSION SCHEME [18 June 2010]

The New Pension Scheme (NPS) for the unorganised sector got a much-needed fillip with the revised discussion paper on the Direct Taxes Code proposing that the end proceeds under this scheme be exempt from tax. Under the existing tax structure, the maturity proceeds under the NPS are taxed. That is, an EET (exempt-exempt-tax) method is followed. This put the scheme at a disadvantage vis-a-vis other savings instruments where the exempt-exempt-exempt (EEE) method was followed. The Direct Taxes Code had brought all the savings instruments under the EET category. However, following representations from various quarters, the Government has decided to continue with the EEE method for savings instruments such as provident fund and pure life insurance products. It also decided to include the NPS for the unorganised sector in the EEE category. There were two major problems facing the NPS for the unorganised sector. One, taxation and second, there are no intermediaries who can sell the product to the masses. If the revised paper gets approved in the current form, it will solve one of the major problems, said Mr Balram P. Bhagat, Chief Executive Officer, UTI Retirement Solutions, one of the fund managers under this scheme. Even after more than a year of operations, the NPS for the unorganised sector has only managed to collect around Rs 10-12 crore from less than 7,000 people. To attract more subscribers, PFRDA had introduced the option of opening a tier-2 account wherein the subscribers can withdraw the funds at any point of time. However, even that failed to attract investors. - www.thehindubusinessline.com

CENTRE, STATES MAY AGREE ON COMMON THRESHOLD FOR GST [21 June 2010]

In a move that should get more traders into the ambit of the proposed goods and services tax (GST), the Centre and states may settle for a common threshold of Rs 10 lakh for imposition of the levy. At present, the threshold prescribed for imposition of Value Added Tax (VAT) - which will be abolished when GST comes into effect - differs from state to state. It is Rs 5 lakh of annual turnover in a majority of the large states. For the Centre, the threshold is Rs 1.5 crore. It applies VAT on businesses above this level of annual turnover. The move for a common threshold would be a deviation from the suggestion made by the empowered committee of state finance ministers. The committee had called for fixing the threshold for Central GST at the present level of Rs 1.5 crore, and to raise it to Rs 10 lakh for state GST. The Centre had opposed the proposal, saying GST would be a combined tax regime and the thresholds should be the same for both, states and the Centre. The Union finance ministry has discussed the issue with the empowered group. The latter has left it to the Centre to decide its threshold, while maintaining that in its view, the threshold for the Union government should be higher than that for states. The Centre has told the states it would like to keep its threshold at Rs 10 lakh, too, a government official told Business Standard. "We want that the threshold level should be the same for both. If it is Rs 10 lakh for the states, it cannot be as high as Rs 1.5 crore for us. States expressed their opinion and said we can decide our limit," added a finance ministry official, who did not wish to be named. 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 counterview was that it might lead to some companies underreporting their annual turnover.
Union argument

The Union finance ministry said instead of keeping them out of central GST, small businesses below Rs 1.5 crore could be compensated by simplifying and reducing the paperwork for them. These businesses would not be required to file returns frequently and the registration process would be simplified for them, besides prescribing a minimum audit, based on risk parameters. The Centre‘s other worry was that a variance in threshold limit could change the revenue-neutral rate and also lead to problems in collecting IGST, which would be applied on inter-state transfer of goods and services. About 80 per cent of the goods have inter-state movement and different thresholds can lead to accounting problems. A separate threshold would lead to change in the assessee base for the Centre, which in turn would affect the requirement for IT infrastructure. The official said after the last meeting of the empowered committee, there had been a lot of progress in discussions with the states on moving ahead with GST. In the last meeting, the governmet had agreed to give more than Rs 50,000 crore to compensate the states for losses on account of GST introduction. The 13th Finance Commission had suggested a compensation of Rs 50,000 crore for five years. Finance Minister Pranab Mukherjee told the empowered committee he was ready to fully compensate the states in the initial years, provided there was a consensus on the broad framework for GST, including the threshold limit, exemption list and the revenue-neutral rate. - www.business-standard.com

IRDA COMMITTEE RECOMMENDS TIGHTENING KYC NORMS TO STOP MIS-SELLING [21 June 2010]

In an effort to stop mis-selling of insurance policies, the Insurance Regulator and Development Authority, or Irda, on Friday issued draft regulations asking insurers to supervise agents and submit a complete needs analysis report for each prospective customer. In a first of its kind move, the report has recommended that life insurers compulsorily collect details of customers‘ lifestyle, financial health, future plans, and exact need of insurance and so on. keeping the vulnerable public protected from unfair practices is of utmost importance. Unfair practices could arise in a scenario of increasing number of insurers, intermediaries and insurance products and severe competition for business," the report said. In order to assess the exact financial needs of customers, it has been proposed to monitor the role of the intermediaries by the insurers. Irda should require insurers to establish a system to supervise the recommendations made to customers by intermediaries, it said. Irda has sought feedback on the proposals by 5 July. - www.livemint.com

REGULATION TO KEEP BANKS OFF BAILOUT TAX [21 June 2010]

As differences are likely to resurface over the proposed bank tax at the forthcoming G-20 Summit in Toronto, the Finance Ministry has said tighter regulation will enable the domestic banks escape any such levy, unlike most other countries in the bloc. While the G-20 finance ministers‘ Busan summit earlier this month had agreed to not impose tax on banks to fund future bailouts, the European Union on Thursday again decided to press for the same at the June 26-27 Toronto Summit. Even as not calling for bank tax, the G-20 finance ministers had agreed not to burden the taxpayers for bailouts, and asked financial institutions to chip in to governmental efforts in this regard. "We (G-20) have agreed in principle not to burden the taxpayers for the bailout of failing banks," a finance ministry official had said on the consensus reached by the G-20 fiance ministers at Busan, South Korea, early this month. But this does not mean every country will have to impose a bank tax for future bailouts, since regulations also serve the same purpose and impose a cost on banks, he clarified. "There is no contradiction here. The consensus is that cost should not be borne by the taxpayers. There are other ways than taxing banks. Even tight regulation is a cost on banks as it raises the cost of capital," the official added. At the Busan meeting, New Delhi has objected to the bank tax proposal and had instead suggested strengthening the regulatory mechanism to avoid any bank failures in future. Finance Minister Pranab Mukherjee had also said G-20 had "by and large accepted" not to tax banks. "We are not in favour of having taxation on banks. We suggested that ultimately you please take it up through the regulatory route. By and large, it was accepted," Mukherjee had said. Explaining, the official said there can be different ways in which financial institutions can contribute towards governments efforts. A tighter regulation on banks, as is in our country, is in itself a cost to the banks, he pointed out. "In comparison, the cost of capital is much less in most Western countries as there is very less regulation. So, in those countries their governments can ask for a bank levy," he added pointing to different ways within the consensus. However, the 27-nation European Union said in a joint communique on Friday that the EU representatives in the G-20 will seek the support of other nations for "further developing and exploring" possibilities of introducing a financial transaction tax. The EU should lead the efforts to arrive on a global agreement "for introducing systems for levies and taxes on financial institutions", the communique said. Besides the EU, the US favours bank tax, while India, Australia and Canada are opposed to the idea. - www.economictimes.indiatimes.com

I-T DEPT TO

Admitting that many Income Tax refunds were still pending, the I-T Department today decided to "clean up the mismatched TDS database" due to which the refunds were held up. An I-T Department release said, "The Income Tax Department has taken the initiative to clean up the mismatched TDS data base. Many refunds are pending with the IT Department due to the mismatch of tax paid by the assessee, but the same is not being reflected in the computer software of the department. "The release said that the department is concerned about the same as the problem has risen either due to wrong PAN numbers mentioned by assesses while paying tax or wrong PAN number mentioned by the deductor while deducting the TDS of the deductee. - www.pti.com

NEW TAX CODE FOR PARLIAMENT NOD IN MONSOON SESSION: MUKHERJEE

A simplified Direct Tax Code to replace the 50-year-old Income Tax Act and free people from the clutches of chartered accountants would be tabled for parliament‘s approval in the monsoon session, Finance Minister Pranab Mukherjee said on Wednesday. "The draft is under revision, taking into consideration the areas of concern expressed by various stakeholders," Mukherjee told the annual conference of chief commissioners and directors general of income tax here. "The discussion paper will be shortly in the public domain before introduction in parliament in the forthcoming monsoon session. It will indeed be legislation for the 21st century, which will witness the emergence of an economically strong and vibrant India." The minister said direct taxes were now a major resource provider to the government and had grown at an average rate of 24 percent per annum in the past five years, trebling from Rs.132,771 crore in 2004-05 to about Rs.378,000 crore in the previous fiscal. The share of such taxes has also increased from 4.1 percent to 6.1 percent of the gross domestic product (GDP), which was made possible by rationalisation of tax structure and improvement in administration that led to better tax compliance. "To improve compliance further, tax laws need to be simple, stable and robust. Tax rates should remain moderate. Multiplicity of tax exemptions and deductions must be gradually phased out in order to widen and deepen the tax base." The finance minister also announced that in order to upgrade the skills of the Indian Revenue Service (IRS) officers, an advanced mid-career training programme for them would be started during the current year. This, he said, will equip officers to face challenges dealing with complex international transactions and fight menace of tax avoidance schemes and the use of tax havens and low tax jurisdiction. Mukherjee also expressed concern over rising litigation with taxpayers and the quantum of revenue locked in appeals. He said taxpayers should be encouraged to mutual agreement procedure, which has emerged as a preferred alternate dispute resolution mechanism. He asked the officers of the Central Board of Direct Taxes (CBDT) to come out with a comprehensive proposal to address the issue of unwanted litigation with taxpayers and also to realise locked up revenue in appeals. - www.economictimes.indiatimes.com

AUSTRALIA SUPER-PROFIT TAX TURNS RIO TINTO TO INDIA

Global mining major Rio Tinto on Tuesday said it plans to shift focus from Australia to other countries including India as an unrelenting government here is all set to impose super-profit tax on mining companies. "It (the tax proposal) makes offshore projects more attractive," Mr Alan Davies, Rio Tinto‘s Managing Director, Global Development and Chief Financial Officer, Iron Ore, told newspersons here. Rio Tinto produces nearly 90 per cent of its total iron ore output of 237 million tonnes from its mines in Australia. Mr Davies said his company is finding it increasingly difficult to make decisions regarding further investments in Australia because of the plans to impose super-profit tax on mining companies. He said the tax, which is set to be implemented from July 1, 2012, could raise the total tax burden to about 58 per cent from the current 35 per cent. "What we need is a certainty on this issue and therefore we are deferring our investment plans," Mr Davies said. The Western Australia Minister for Mines and Petroleum, Mr Norman Moore, also admitted that that the imposition of the super-profit tax could lead to flight of capital from this country. "The cost of finding minerals is very high. It is a competitive business and lots of other countries are keen to attract investments," he said. He said his government is opposed to such a tax. "… because it is a high risk business to get into mining, you are entitled to higher profits," he said.

Diamond mines
In another development, Rio Tinto‘s group company, Argyle Diamonds Chief Operating Officer, Mr Kevin McLeish, said that the company plans to invest a further A$50 million into the pre-feasibility study in Bundar in Madhya Pradesh for the next two years. It has an exploration lease there and is awaiting a mining lease from the Indian Government. "We are hopeful of finding more diamond mines in India," Mr McLeish said. The Rio Tinto India Managing Director, Mr Nik Senapathi, said the company has received reconnaissance permit from the Government for exploration of diamond mines in Karnataka, Orissa, Chhattisgarh and Maharashtra.
India, high priority
Mr Davies said India was high on the priority list for the company. But he admitted that the proposed mining venture with Orissa Mining Corporation and NMDC was taking time. "We are ready but certain regulatory processes are not under our control," he said. Mr McLeish said the company has invested about $1 billion for underground mining operations in its mines in Kimberley. He pointed out that this investment has to a certain extent been underwritten by its customers in India. "Else the mines would have closed by 2008," he said. He said the underground mining will increase the life of the mines by another 10 years. "India plays a critical role in our business and we are working hard to consolidate our position in the Indian market," he said. Rio Tinto which is the largest producer of natural colour diamonds he world sells about 80 per cent of its diamonds to India. Through its customers it employs about 2.6 lakh people in India. Rio Tinto has about 250 million carat reserves and has mined about 750 million carats so far, Mr McLeish said. - www.thehindubusinessline.com

PE INVESTMENTS IN INDIA AT USD 630 MN IN MAY

Private equity investments in the country zoomed to USD 630 million in May, nearly three times compared to the year-ago period, as investors preferred financial services and healthcare companies. "Private equity investments in India in May 2010 grew by nearly 200 per cent as compared to the same period last year. Deal value was USD 630 million in May this year against USD 211 million in May last year," deal tracking research firm VCCEdge said in its report. The total deal count also increased by 42 per cent to 28 deals from 19 recorded in May last year. However, on a month-on-month basis, PE deal valuation declined by 25 per cent from USD 840 million in April. The month of March has been the best in terms of PE investments so far in 2010, with the deal value at its highest at USD 973 million. During the month of May, financial services, materials and healthcare segment were the most valued sectors for PE funding. "Together, they accounted for more than 80 per cent of total PE deals during the month," VCCEdge said. In May, financial sector saw an investment of USD 212 million, followed by materials (USD 166 million) and Healthcare (131 million). Together, the three sectors account for 80 per cent of the total PE deal value during the month, VCC Edge said. The most valued sector in terms of deal volume was the financial sector with nine deals during the month, followed by consumer discretionary with five deals. Other sectors which saw major deals happening, include IT and industrial accounting (4 deals each). Major PE investments during the month were in companies like Avinja Properties, National Stock Exchange, Fortis Healthcare and Pegasus Assets Reconstruction. Kohlberg Kravis Roberts & Co(KKR)‘s USD 165 million investment in Chennai-based Avnija Properties, followed by Temasek Holdings‘ funding in National Stock Exchange (USD 150 million). Also GIC Special Investments‘ USD 84 million investment in Fortis Healthcare and DE Shaw‘s USD 26 million funding in Pegasus. - www.economictimes.indiatimes.com

RETIREMENT BENEFITS NOT TO BE TAXED: GOVT

The government said provident funds would not be taxed on withdrawal and dropped a proposal to levy Minimum Alternate Tax from corporates based on their assets from the revised draft Direct Taxes Code. The Code, released for public discussion, does not give any details on the Income Tax structure such as the slabs or rates, which were provided in the first draft released in August 2009. Based on the outcome of discussion on the revised draft code, the government will bring in a new Income Tax legislation to replace the archaic Act of 1961. Revenue Secretary Sunil Mitra said the taxation rates in the first draft, which suggested 10 per cent tax on income from Rs 1.60-10 lakhs and 20 per cent on income between Rs 10-25 lakhs and 30 per cent beyond that, were illustrative. He said the tax rates would be made known only in the proposed Act, a bill for which will be introduced in Parliament in the coming monsoon session. "As of now, it is proposed to provide the EEE (Exempt- Exempt-Exempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF) ...", the revised DTC released by the Finance Ministry said. The revised draft also puts pensions administered by the interim regulator PFRDA, including pension of government employees who were recruited since January 2004, under EEE treatment. The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode. The proposal drew flak from several quarters, especially the trade unions and salary earners. The fresh draft, on which the government has invited comments from stakeholders till June 30, also dropped the proposal to impose MAT on gross assets, a move which too was fiercely opposed by the industry. "We welcome both the changes (on MAT and long-term savings)", a spokesman for industry chamber FICCI said. - www.livemint.com

GOVT RETAINS TAX EXEMPTION TO INTEREST ON HOUSING LOANS

The government today proposed to retain the income tax exemption for up to Rs 1.5 lakh paid as interest on housing loans in a year, a step that brings cheers back to home loan borrowers. The revised discussion paper on Direct Taxes Code (DTC), which would replace the decades old Income Tax Act, has retained the tax exemption for up to Rs 1.5 lakh paid as interest on housing loans. The revised draft is put up for public comments till June 30. Earlier in the first draft of DTC, the government was silent on incentive given to interest paid on home loans, leading to widespread fears that this sop would be withdrawn. The revised draft, however, is silent on exemption given on principal amount paid on housing loans. The first was also silent on this front. At present, borrowers can enjoy exemption on payment of of principal amount. However, it is part of exemption to savings capped at Rs 1 lakh per annum. Interestingly, the 1st draft had proposed to revise this limit to Rs 3 lakh a year. The revised draft said the overall limit of deduction for savings will be calibrated accordingly. "In case of any one house property, which has not been let out, an individual or HUF (Hindu Undivided Family) will be eligible for deduction on account of interest on capital borrowed for acquisition or construction of such house property (subject to a ceiling of Rs 1.5 lakh) from the gross total income," the revised draft said. Reacting to the revised proposal, Vikas Vasal, KPMG India partner said, "Restoration of the deduction for interest paid for housing loan up to Rs 1.5 lakh is a welcome step." Rajesh Srinivasan, Deloitte Tax Partner, said whether rebate on principal amount of hosuing loans is given or not will be known once the government comes out with details on Rs 3 lakh limit. - www.business-standard.com

PRANAB ASKS TAX AUTHORITY TO HIVE OFF E-PAYMENT SERVICES

The Finance Minister, Mr Pranab Mukherjee, has asked the Central Board of Direct Taxes (CBDT) to consider hiving off its technology-driven taxpayer services to a Special Purpose Vehicle (SPV) that could better deliver such services in the public-private-partnership (PPP) mode. Inaugurating the 26th Annual Conference of the Chief Commissioners of Income Tax (CCIT) and the Director-General of Income Tax (DGIT) here on Wednesday, Mr Mukherjee pointed out that it may not be possible for the Tax Department to deliver the technology-driven services of the desired quality in the existing structure of tax administration. "CBDT may come out with a new structure that leads to faster adoption of technology and innovation", Mr Mukherjee said. Currently, the Income-Tax Department is providing a slew of technology-related services including e-filing of returns, e-payment of taxes, taxpayer-related information, tax credit information, and e-TDS. If these services are moved over to an SPV, they could be provided more effectively, official sources said. This would also help in providing certain value-added services in the coming days. The I-T Department is often constrained by government rules on expenditure. The SPV could also look at raising its own resources. The Finance Minister said that efforts should be made to further popularise and increase e-filing of tax returns and e-payment of taxes to reduce paperwork. He also wanted the CBDT to set up expeditiously the centralised processing centres (CPC) in Pune and Manesar.
Overseas centres
Meanwhile, on international taxation, Mr Mukherjee announced that eight more income tax overseas units (ITOU) would be set up within Indian missions in the US, the UK, the Netherlands, Japan, Cyprus, Germany, France and the UAE. The ITOUs are being established to strengthen the fight against menace of tax evasion using cross-border transactions, he noted. As response to global challenges, the CBDT had recently set up two ITOUs within Indian missions in Singapore and Mauritius to facilitate exchange of information. On direct tax collection target for 2010-11, Mr Mukherjee asked the Department to collect little more than the budget estimate of Rs 4.3 lakh crore for the current fiscal.
Tax mop-up target
"You know my appetite is infinite and greed is more", he quipped. At the same time, the Minister made it clear that he was not asking the CBDT to revise upwards its collections target for the current year. Last year, the Finance Minister had asked the Department to revise its collection target from Rs 3.7 lakh crore. The Revenue Secretary, Mr Sunil Mitra, said that direct tax mop-up in 2009-10 was about Rs 3.79 lakh crore. "I am told another Rs 1,000 crore is on its way. The department could have achieved the revised estimate if Mumbai and Delhi had done a bit more", he said. - www.thehindubusinessline.com

I-T DEPT TOLD TO DISBURSE REFUNDS WITHIN 2 MONTHS

The Income-Tax Department must progressively reduce the time taken for refunds from the present period of more than four months to a maximum of 60 days, Mr S.S. Palanimanickam, Minister of State for Finance, has said. There is also a need to review and revamp the existing Tax Deducted at Source (TDS) administration, he said in his valedictory address at the 26th Annual Conference of the Chief Commissioners of Income-Tax (CCIT) and Director General of Income Tax (DGIT) here on Thursday. Mr Palanimanickam noted that the Department‘s efficiency had to be benchmarked by the satisfaction level of the users. He highlighted that a major source of dissatisfaction of income-tax assessees is with respect to refund of taxes. "The time taken to grant refunds is very high when compared to international standards," the Minister said, adding that the department should set up a task force to revamp the system of tax refunds.
REFORMS

The objective of the revamp should be to progressively bring down the time taken for refunds to a maximum of 60 days. He also pointed out that the taxpayers are facing difficulties in getting credit of the TDS paid by them. Mr Palanimanickam, who is in charge of revenue and tax administration at the central level, stressed the need for taxpayers to receive uniform treatment of their cases in any part of the country. "In order to ensure uniformity of approach and transparency in its functioning, the Department should put in place a mechanism to disseminate information on all such important orders, judgments to all field formations," he said. He also urged the CBDT to take up cadre restructuring in right earnestness, stating that it was important to satisfy the professional aspirations of officers in a timely manner. The Union Finance Minister, Mr Pranab Mukherjee, had in his inaugural address on Wednesday laid emphasis on taking up cadre restructuring proposal, which had been delayed. Meanwhile, Mr Palanimanickam urged the Income-Tax Department to "actively work" on a proposal to enhance delegation of financial powers to its field formations. "To ensure better coordination of expenditure on human and material resources, the department should consider setting up of a dedicated Directorate of Finance. There is an urgent need to tone up the vigilance machinery of the Department. It is imperative that the Department fixes timeframe to decide vigilance related cases," he said. He also highlighted the delay in compiling the monthly revenue figures within the first week of the following month. "I would like to be apprised of the bottlenecks, if any, in timely compilation of the revenue figures," Mr Palanimanickam said. - www.thehindubusinessline.com

I-T EXEMPTION LIMIT FOR GRATUITY UPPED TO RS 10 LAKH

The government today raised the income tax exemption limit on gratuity from Rs 3.5 lakh to Rs 10 lakh, with effect from May 24. "Employees who retire, become incapacitated, terminated, or die on or after May 24, 2010, will get I-T exemption for gratuity up to Rs 10 lakh," a Finance Ministry official said here. The Finance Ministry today notified a rule in this regard, the official added. Earlier, the Parliament had approved raising the limit of gratuity to be exempted from income tax. The Payment of Gratuity (Amendment) Bill, 2010, was passed by the Parliament in this regard in the Budget session. While the Sixth Pay Commission had raised the limit for Central Government employees, the Cabinet later enhanced the ceiling for the private sector workforce as well. - www.economictimes.indiatimes.com

ADVANCE TAX PAYMENTS UP 21% IN JUNE QUARTER

Advance tax payments made by the top 100 companies based in India‘s financial capital Mumbai rose by one-fifth for the quarter ending 30 June, indicating that earnings are set to rise on robust economic growth. "The numbers are strong in most cases," said Apurva Shah, vice-president at brokerage Prabhudas Lilladher Ltd. However, one can‘t extrapolate about whether these numbers will lead to earnings upgrade for listed firms, he added.The consensus Street estimate for fiscal 2011 earnings increase is 20% and at this level, the benchmark Sensex index on the Bombay Stock Exchange is trading at an earnings multiple of 16.79, a bit above the long-term average. An increase in earnings estimate will lower the price-earnings multiple and make stock valuations look cheaper.Corporations in India pay income-tax every quarter on their projected earnings and the first quarter typically accounts for 15% of the annual tax payout for firms. The figures are used as a proxy for financial performance estimates."Historically, the correlation of earnings with actual profits has been mixed," said Mohan K.R. Swamy, head of equities research?at?the?Royal Bank of Scotland Plc‘s local securities unit. Manufacturing companies, led by auto firms, showed a robust growth in tax paid. Cement firms saw a decline in tax paid while banks and finance companies presented a mixed picture.In the first quarter, State Bank of India (SBI), the country‘s largest lender, is the highest tax payer in the Mumbai circle, paying Rs869 crore, down 18.5% from a year ago.Just like in the previous quarter, foreign banks, too, presented a mixed picture. Analysts said it was too early to draw any inference from these numbers as banks typically "re-provision and accommodate changes in interest rates."Among Indian lenders, ICICI Bank Ltd paid the same amount as last year-Rs350 crore. HDFC Bank Ltd paid Rs315 crore, an increase of 26%, while Punjab National bank Ltd paid Rs317 crore, up by one-fifth.Among other companies, Reliance Industries Ltd (RIL), India‘s largest private firm by market value, paid Rs653 crore, more than double of what it paid a year ago. This is largely because the profits from gas sales from its fields in the Krishna-Godavari basin off the eastern coast are likely to kick in. RIL is the second largest advance tax paper after SBI.The Life Insurance Corp. of India is the third largest taxpayer in Mumbai, with an outgo of Rs469 crore, up 13.76% from a year ago."The collection is better than last year but not robust," said an income-tax official, who didn‘t want to be named as he is not authorized to speak with the media.The top 100 companies in Mumbai together paid Rs8,181.93 crore, an increase of 20.83% over the levy paid in June 2009. Companies based in Mumbai contribute about one-third of India‘s direct tax kitty.The official figures for the country are yet to be collated by the income-tax department. The government has a direct tax target of Rs4.30 trillion this fscal, around 11% more than last year‘s target. For now, it seems well within reach, given this sample of advance tax collections and other supporting indicators such as industrial output. The Index of Industrial Production numbers for April grew at 17.6% over a year ago, beating analysts‘ estimates by a wide margin.Of the 22 members of the Nifty index of the National Stock Exchange whose advance tax figures are available, 17 have paid more tax. These firms together paid 19.9% more tax this quarter compared with a year ago.Mahindra and Mahindra Ltd paid Rs63 crore, up 260%, and Tata Motors Ltd paid Rs65 crore, more than double last year‘s outgo. India‘s top software firm Tata Consultancy Services Ltd paid Rs128 crore, up 141%, signalling technology firms are on a firm growth path. - www.livemint.com

MAT ON BOOK PROFITS SET TO COME BACK IN REVISED DIRECT TAXES CODE

True to his reputation as a business- and people-friendly Minister, the Finance Minister, Mr Pranab Mukherjee has conceded to most of the demands of stakeholders on the proposed Direct Taxes Code (DTC). The revised discussion paper on DTC, released on Tuesday, has addressed the concerns on all the nine areas that were brought to the notice of the Finance Minister. It has sought to restore the computation of minimum alternate tax (MAT) on book profit basis. The DTC had proposed MAT on gross assets basis - a proposal that was strongly opposed by corporate India. Besides restoring tax deduction for interest on home loans for individual taxpayers, the revised paper seeks to come up with a new tax regime for capital gains. The nine areas related to MAT, tax treatment of savings - Exempt-Exempt-Tax vis-a-vis EEE basis, status of double-tax avoidance agreements vis-a-vis domestic law, administration of General Anti-Avoidance Rule, taxation of income from house property on a presumptive basis, special economic zones, tax treatment of capital gains and tax treatment of non-profit organisation among others. Announcing the release of the revised discussion paper, the Revenue Secretary, Mr Sunil Mitra, told reporters that the paper would be open for public comments till June 30. The Government hopes to introduce a Bill on the proposed DTC in the Monsoon session of Parliament. - www.thehindubusinessline.com

NEW DIRECT TAXES CODE PROPOSALS BRING SOME RELIEF FOR INDIA INC

The revised discussion paper on Direct Taxes Code has proposed computation of minimum alternate tax (MAT) on book profits basis. The DTC had proposed levy of MAT on gross assets - a proposal that was totally opposed by corporate India. There was also some relief for corporate India on issues such as treaty override and special economic zones (SEZs). The revised discussion paper made it clear that profit-linked deductions of units already operating in SEZs would be protected for the unexpired period. The DTC had cast a doubt among existing SEZ units on whether they would continue to get profit linked deductions once the DTC was to be operationalised. In the case of individual taxpayers, the revised discussion paper has brought relief in form of restoration of up to Rs 1.5 lakh deduction on interest paid on home loans. Also, the revised paper has provided exempt-exempt-exempt (EEE) method of taxation for Government provident fund, public provident fund and recognised provident funds and the pension scheme administered by PFRDA. Approved pure life insurance products and annuity schemes will also be subject to EEE method of tax treatment. Investments made, before the date of commencement of the DTC, in instruments that enjoy EEE method of taxation under the current law, would continue to be eligible for EEE method of tax treatment for the full duration of the financial instrument. The revised discussion paper also seeks to revamp the system of taxation of capital gains. Under the proposed regime, for listed equity shares or units of an equity oriented fund held for more than a year, capital gains would be computed after allowing a deduction at a specified percentage of capital gains without any indexation. The adjusted capital gain would be included in the total income of the taxpayer and will be taxed at the applicable tax rate. The loss arising on transfer of such asset held for more than one year will be scaled down in a similar manner. All this would imply that there will be a shift from the current nil rate of tax on listed equity shares and units of equity oriented funds held for more than one year. For taxation of capital gains arising from transfer of investment assets held for more than one year (other than listed equity shares or units of equity oriented funds), the base date for determining the cost of acquisition will now be shifted from April 1, 1981 to April 1, 2000. As a result, all unrealised capital gains on such assets between April 1, 1981 and March 31, 2000 will not be liable to tax. The capital gains will be computed after allowing indexation on the raised base. - www.thehindubusinessline.com

EXEMPT EXEMPT TAX WILL HIT TAX PAYERS HARD

In August 2009, the finance minister released for public comments, a draft of the new Direct Taxes Code (DTC), which is slated to replace the present direct tax laws. In response, various industry associations, trade bodies and consulting firms made representations regarding the concern areas, ambiguities, etc. A revised draft addressing certain identified core areas of concern is likely to be released soon for further public consultation. One of the DTC proposals that has been most debated is Exempt-Exempt-Tax (EET) regime for taxation of insurance products and other savings instruments. The EET method allows exemption at the first two stages, but provides for a tax on withdrawals at the personal marginal rate. The concept of EET is primarily prominent in developed countries, which have comprehensive social security schemes, but in India, in the absence such schemes, EET, if implemented, would come as a big blow to the individual tax payer. Many representations were received regarding these provisions. This article discusses the key provisions proposed in the current draft of the DTC regarding the taxation of insurance products and mutual fund products.
Insurance - Impact on holders Contribution stage
Currently, a deduction from the total income up to a maximum of Rs 100,000 is available in the hands of individuals in respect of premium paid for self, spouse and children. Under DTC, this limit is sought to be raised to Rs 300,000 (in respect of premium for self) and the premium paid for spouse and children may not be deductible in the hands of the payer.
Accrual stage As envisaged in the draft DTC, the policyholders would be exempt from tax at the accrual/accumulation stage as per the provisions of the current income tax law. Further, under DTC, life insurance companies are sought to be treated as ‘pass-thru entities‘. Accordingly, the surplus in ‘policyholders account‘ of the insurance companies is sought to be exempt from tax. ((Under the current law, the same is taxable at 12.5%,) (plus surcharge and education cess) as part of actuarial surplus in the hands of the life insurance companies.)) While the DTC seeks to exempt the policyholders‘ surplus, the Minimum Alternate Tax (MAT) of 2% on gross assets proposed in the DTC could erode the policyholders‘ surplus unless policyholders‘ surplus is exempted specifically from the MAT provisions.
Withdrawal/ Maturity stage Currently, any sum (including bonus) received under a life insurance policy, except policies where the premium paid for any of the years exceeds 20% of the capital sum assured, is exempt from tax. In case where the premium paid in any of the years exceeds 20% of the capital sum assured, an exemption is available only if the sum is received on the death of the insured. Under the DTC, the entire proceeds from a life insurance policy are proposed to be made taxable. The proceeds are not taxable only if it is in respect f a policy, whrein the premium paid in any of the years does not exceed 5% of the actual capital sum assured and where the sum is received on completion of original contract period or upon the death of the insured. Thus, various insurance products, including unit-linked products, may not enjoy the exemption at the withdrawal stage. Further, the death benefits of only qualified policies (i.e., those policies where the premium paid in any of the years does not exceed 5% of the capital sum assured) would be exempt from tax.
MFs - Impact on unit holders Currently, the entire income of Sebi-registered mutual funds is exempt from tax. All mutual funds (except equity-oriented funds) are liable to pay tax on income distributed to the unit holders at the prescribed rates (13.84% for individuals for debt funds and 27.68% for liquid/money market funds), i.e. income distribution tax (IDT). The income received by the unit holders in respect of the units of a mutual fund, is exempt from tax in their hands. Under the DTC, it is proposed that the income of mutual funds would continue to be exempt from tax. Further, the mutual funds are also sought to be exempt from the payment of IDT, irrespective of the nature of their schemes. Also, the unit holders are also to be exempt from tax in respect of the income from units of a mutual fund. The treatment proposed under DTC is inconsistent with the treatment discussed in the discussion paper on DTC and also the EET mechanism, according to which investors should be liable to tax on any income which accrues to them from any pass-thru entities (including mutual funds). This would result in complete non-taxation of income (other than gains on transfer of units), which does not appear to be the intent. The DTC does not contain any comparable provision as exists in current tax laws, for deduction of up to Rs 100,000 in respect of subscription made to any mutual fund framed in accordance with equity-linked savings scheme, 2005. Further, in respect of capital gains earned by individual investors on the sale of unit of mutual fund, there are differences in tax rates as per the current law and as proposed by DTC, as indicated in the table. The provisions of DTC, as envisaged, for taxation of the insurance and mutual fund products would provide a competitive advantage to mutual fund products against insurance products. It is hoped that the tax advantage would be neutralised in the revised draft of DTC. - www.economictimes.indiatimes.com

INDIAN BUSINESS DEMANDS MORE TAX BREAKS FOR GREEN INVESTMENT

Eighty five per cent of Indian companies are of the view that government tax breaks are required to accelerate green investments, a survey revealed. Thirty per cent of companies in India monitor their carbon footprint compared to the global average of 19 per cent. Eighty five per cent of companies in India said if government offered tax incentives to invest in energy efficient or low-carbon equipment, businesses would significantly accelerate their green investments, a global survey by workspace solutions provider, Regus, revealed. The study revealed that only 51 per cent of companies monitor their energy efficiency. Another 50 per cent of companies had a policy to invest in energy efficient equipment. Running costs were found to be important to the majority (57 per cent) of companies that declared that they would only invest in low carbon equipment if it were cheaper or the same to run as conventional equipment. Small companies throughout were found to be below average on their actual and predicted level of green investment, indicating that smaller businesses are harder pressed to select low-carbon equipment when this comes at marginally higher price, as short-term needs are more urgent than long-term investment. Only 25 per cent of small businesses monitor their carbon footprint compared to compared to 45 per cent of large businesses. Similarly only 44 per cent of small businesses had invested in green equipment compared to 57 per cent of large businesses. The survey also analysed sector differences. Forty three per cent of companies in the ICT sector measure their carbon foot print, 53 per cent of companies in the Sector had invested in green technology and 57 per cent had a policy to do so. By contrast only 25 per cent of companies in the consultancy sector monitor their carbon foot print, but 71 per cent declared that the majority of their equipment was energy efficient. - www.economictimes.indiatimes.com

INDUSTRY BODY SEES 40% IMPORT TAX ON SUGAR

India may impose an import tax of at least 40 per cent on white sugar to arrest a sharp fall in local prices of the sweetener, industry officials said on Thursday. India, the world‘s top consumer of white sugar, had last year withdrawn a 60-per cent import tax on the commodity when output fell 44 per cent to 14.7 million tonnes, turning the country into a big importer and helping New York raw sugar futures surge to their highest in 29 years in February. "Imported sugar sells much lesser than our production cost," said M N Rao, deputy director general of the Indian Sugar Mills Association. "At least a 40 per cent duty will give some respite," he said, and added the millers would not mind the earlier duty rate of 60 per cent. Imposing the duty again would help mills pay a good price to cane farmers and encourage higher cultivation, industry officials said. Farm Minister Sharad Pawar said India may take a decision "in a week or so" on re-imposing duty on sugar imports, a Press Trust of India report in the Financial Express newspaper said on Thursday. Millers in India have been demanding a duty on refined sugar imports as the prices of the sweetener fell in local markets by about 30 per cent in the last four months, the report said. For a timeline on changes in India‘s sugar import regime, analysts say India could slap an import tax on sugar before the start of its 2010/11 season in October, to protect farmers and millers from a flood of imports as global prices crash. On Wednesday, August white sugar in London ended $15.10 lower at $456.80 per tonne on long liquidation amid improved global sugar production outlook. The global sugar market will see a surplus of about 5 million tonnes this year, 30 per cent more than previously expected, even as consumption rises, though India is unlikely to export any excess sugar soon, industry sources said. - www.economictimes.indiatimes.com

I-T DEPT TO MAKE SPECIAL ARRANGEMENTS FOR RETURNS

The Central Board of Direct Taxes (CBDT) has directed the Income-Tax Department to make arrangements for receiving income tax returns on July 31, the due date for filing tax returns by most taxpayers. The I-T Department has also been asked to make special arrangements by setting up additional counters from July 28-31, to facilitate taxpayers in filing their income tax returns. In Delhi, special counters will be set up in Pragati Maidan, as in earlier years, to receive about 5 lakh income-tax returns that are filed in the last few days. Counters will be opened to give additional and value-added services such as free return forms, photocopy, PAN application and information, e-filing, help desk, etc. Separate counters will also be opened for senior citizens and women, wherever required, an official release said. Similarly, special arrangements will be made in other major tax-collecting centres of the Department such as Mumbai, Kolkata, Bangalore, Chennai, Chandigarh, Ahmedabad and Hyderabad. The respective Chief Commissioners of Income-Tax will announce details of arrangements made in these cities. The Income-Tax Rules have been recently amended to include Receipt Number on the TDS certificates as a mandatory field. It is clarified that Receipt Number will not be required for the income tax returns to be filed this year (assessment year 2010-11), but only from next year. Tax deductors are, however, requested to quote Receipt Number of the TDS return for all tax deducted from this financial year, the release added. - www.thehindubusinessline.com

NILEKANI TO CHAIR PANEL ON USE OF IT FOR TAX ADMIN

Former Infosys co-chair Nandan Nilekani will head a committee that will recommend to the finance ministry on how best to tap information technology for an effective tax administration and financial governance system. Called the technical advisory group for unique projects, the panel has been given a timeframe of six months to make its suggestions, a finance ministry communique said Monday. It will address issues such as manpower requirement, modification of rules, allocation of responsibilities, fixing of commercial terms for competitive bidding, coordination among federal, state and local governments and IT security challenges. The other members are IT Secretary R. Chandrasekhar, markets regulatory chief C.B. Bhave, former pension regulator Dhirendra Swarup, former member of the Central Board of Direct Taxes (CBDT) S.S. Khan, former member of the Central Board of Excise and Customs (CBEC) P.R.V Ramanan, and ICICI Foundation president Nachiket Mor. - www.economictimes.indiatimes.com

FIRMS DROP SEZ PLANS ON SLOWDOWN, TAX WORRIES

The Board of Approval (BoA) for Special Economic Zones (SEZ) will consider 41 proposals on Tuesday for withdrawal or extension of formal approval, and for full or partial de-notification. The reasons cited include economic slowdown, poor demand for space, uncertainty regarding continuity of fiscal concessions under the Direct Taxes Code (DTC) regime, and land dispute. Formal approval is given to proposals meeting the minimum land requirements, but it can be extended or withdrawn. A notified SEZ can be partially de-notified subject to minimum area rules. But the de-notified portion will not get tax benefits. SEZs can also be fully denotified. Larsen & Toubro wants withdrawal of formal approval granted to its proposed IT/ITeS SEZ in Mumbai. The meeting‘s agenda said L&T has informed that "due to changed business environment for the IT business, which is fallout of global recession, and also due to uncertainty in tax provisions under DTC and Goods and Service Tax regulations, it has been decided to make these investments in the DTA (or Domestic Tariff Area)." DTA, the area outside SEZs, is subject to taxes and duties. SEZs are tax-free enclaves. Gulf Oil Corp has sought withdrawal of formal approval to its IT/ITeS SEZ in Bangalore, citing poor demand for space. Pending land dispute case has forced NSL SEZ (Chennai) to seek de-notification of its IT/ITeS SEZ in Tamil Nadu and GP Realtors to go for de-notification of 2.16 hectares of its 18.86 hectare SEZ in Gurgaon. Among those seeking extension of formal approval are Reliance Haryana SEZ, Navi Mumbai SEZ, Unitech, Uttam Galva, TCS, Indiabulls and Cognizant. Due to the IT/ITeS slowdown and no demand for space, Shriram Properties and Infrastructure has sought partial de-notification of its IT/ITeS SEZ in Chennai, while Bata India wants its IT SEZ in West Bengal to be de-notified. To get an SEZ de-notified, developer should not have availed benefits, or if they have, refund it. Also, there should be no operational units in the SEZ. As a silver-lining, there are six new SEZ proposals and one from DLF for re-notification of their de-notified IT/ITeS SEZ in Kolkata citing improvement in demand and the Government‘s support for SEZs. The BoA would consider 88 cases, of which 32 are on extension of formal approval, de-notification (6) and withdrawal of formal approval (3). - www.thehindubusinessline.com

INDUSTRY ROUNDTABLE TO DISCUSS TAX ISSUES

The Center for Asia Studies, Chennai, in association with FoxMandal Little, a leading firm of advocates, is organising a one-day Industry Round Table on ‘The Goods and Services Tax Implementation: Concepts and Issues.‘ According to a press release from the organisers, the one-day event on June 12 in Chennai will be inaugurated by Mr Venu Srinivasan, Chairman TVS Motor Company. Mr Rajeev Ranjan, Tamil Nadu Industries Secretary, will deliver the keynote address. This roundtable will bring together industry heads, tax professionals, and members of the academia to discuss issues in the implementation of this landmark reform and integrate the views and concerns of the industry. - www.thehindubusinessline.com

PUNJAB READY FOR DUAL GST, IF PURCHASE TAX CONTINUES

Punjab Planning and Finance Minister Manpreet Singh Badal, has maintained Punjab is ready for implementation of GST by 2011, provided the centre could exclude purchase tax. Manpreet Badal was speaking to media persons on the sidelines of a conference organised for chairpersons and member secretaries (deputy commissioners) of all the District Planning Committees of Punjab "With 148 countries across the world already implementing, GST, Punjab has no objection in implementing Goods and Service Tax (GST) provided purchase tax is kept out of the purview of GST". Purchase tax is the tax charged on charged on the purchase of food grain from Punjab, for the central pool. The FM reiterated state could lose revenue to the tune of more than Rs 1,000 crore if purchase tax was made part of the GST. Earlier, speaking at conference of Chairpersons and Member Secretaries of the Punjab District Planning Committees (DPC), Badal said the district planning committee played a crucial role in implementing the welfare scheme promoted by both centre as well as state for interest of masses. Since many members of DPC members themselves are not aware of the schemes being run by the government the conference would provide an opportunity to discuss the vital fiscal and administrative powers of the District Planning Committees to make them effective tool of economic development and social change. The finance minister also suggested that conference of DPC should be institutionalised and be a biannual conference which should be held first in the month of June and then in Dec. with an objective to closely monitor the ongoing schemes on regular basis and also to do progressive planning for the schemes to be launched for the next year. Seeking the cooperation of the people in executing the welfare schemes/ at the districts levels, the minister announced that matching grants would be given to those districts where peoples participation would be there.1. - www.business-standard.com

BANK TAXATION NOT A SOLUTION: PRANAB MUKHERJEE

India is not keen on any tax on banks to fund future bailouts, but is all for better regulation, finance minister Pranab Mukherjee told ET in an interview on the sidelines of a meeting of finance ministers from the G20 countries. The proposal to tax banks is likely to be considered at the meeting. The crux of the idea under debate is that public money cannot be used to fund future bank bailouts. Instead, banks should be taxed to build a corpus for future bailouts. The finance ministers and heads of central banks of the G20 countries are meeting here on Friday and Saturday to work out the agenda for the meeting of the heads of states later in the month. The finance minister said India does not support binding fiscal commitments and would also not commit to reducing subsidy. "Taxation is not the alternative," he said, adding that India has enough regulatory tools such as adjusting CRR and SLR to insulate banks from volatility of cashflows. "Banks will simply pay the tax and not reform their ways. This will not solve the problem. Crisis has raised certain questions on regulation and those need to be answered," a government official said. India is not the only one opposed to the tax. Australia and Canada-whose banking system survived the financial meltdown unscathed-too are opposed to such a tax. The US and European countries favour a bank tax to pay for future bailouts. The finance minister also said India does not support global rules on fiscal consolidation. "Sovereign countries will have to be given the elbow room and decision-making process as per (their) will," he said, adding that countries cannot go on living beyond their means. On the issue of fuel subsidy, Mr Mukherjee was categorical that India will not commit to any cap on energy subsidy. "You cannot just impose an artificial ceiling of the energy subsidies without taking into account the requirement of energy for sustainable development of a country‘s economy." Mr Mukherjee was optimistic of the outcome of the Busan summit. "I am very positive... We will be able to present an agenda to the leaders," he said. - www.economictimes.indiatimes.com

FINANCE MINISTRY WANTS VETO IN GST COUNCIL

Needed, it says, to stop states outvoting the Centre on the latter‘s policies.The Union finance ministry is seeking veto power in the proposed council of finance ministers on the goods and services tax (GST). This is necessary, it has told the Union law ministry, to ensure the states do not combine to force a decision against the central interest. The law ministry has the job of drafting a constitutional amendment on the subject which is acceptable to all, Centre and states. The central government‘s idea is to create the council as a disciplinary body whose decision will be binding on all, so that none deviates from the GST regime. Its proposal, yet to be agreed to, is that the body get Constitutional backing. An approval from a majority of states (possibly a two-third majority) would be required for changing the agreed principles of GST. This has been proposed as a way out to accommodate states‘ fears of the GST resulting in their ceding the Constitutional powers they have on tax matters. The move is being presented as a way of ensuring the Centre cannot force its views on the states.

‘The Centre is different‘
However, the Union finance ministry has the opposite fear, of states joining to force the Centre‘s hands. It has noted that the central government would be represented by only the finance minister on the proposed body. "What would the Centre do if states get together and suggest something not in our interest? All we want is that on the matters related to central taxes, the finance minister should have a right to reject a proposal of the states. It will be like a veto only to stop changes, not to adopt those," said a finance ministry official, on condition of anonymity. Another said the proposed power may not be termed a ‘veto‘, to avoid the negative connotation for states. "There should be a consensus. If states are proposing something and the Centre does not agree to it, that means there is no consensus and a proposal should not move forward, and vice versa," he said. Some states, on the other hand, are opposed to the proposal. Madhya Pradesh and Tamil Nadu have already strongly opposed the idea in their discussions with the finance ministry. And, other states - Kerala is one - are opposing the concept of the council altogether. They want the current system of having an empowered committee of finance ministers to continue. "As of now, we are happy with the empowered committee of state finance ministers. This forum has worked well. Officials of the finance ministry are present in the empowered committee‘s meetings. There is no need to have another council," said Thomas Isaac, finance minister of Kerala. - www.business-standard.com

NO NEED TO TAX BANKS TO CREATE BAILOUT FUND: PRANAB

India on Thursday said it does not favour taxing banks to create a corpus for future bailouts and stressed the importance of well-placed regulations to detect and contain any deviation in financial institutions‘ functioning. Finance Minister Pranab Mukherjee made this clear during talks with Sakong Il, chairman of the presidential committee for G-20 finance ministers meeting, in the South Korean city of Busan. The levy idea is backed by the United States and Europe. Developing nations plus Australia and Canada oppose it, saying their banks did not trigger the 2008-9 financial crisis and should not have to pay for cleaning up the mess. Mukherjee said India‘s banking system could withstand the trouble, mainly because of well-placed regulations. Indian banks had largely remained unaffected during the global financial crisis, which saw many large banks based in the US and Europe go under or seek state help to stay afloat. Both Mukherjee and Sakong, a former finance minister of South Korea, said the G-20 will be able to play a major role in the global economic recovery, reflecting the change in the balance of power in the world. "This is all the more relevant as various advanced and developed economies have failed to resolve their financial problems on their own," the two leaders said in a joint statement, released here by the finance ministry. Both hoped that Europe could contain the euro zone damage with a support package for debt-ridden countries such as Greece worth $1 trillion. Mukherjee is scheduled to attend the four-nation BRIC (Brazil, Russia, India and China) meeting later in the day before taking part in the G-20 ministerial meeting. - www.economictimes.indiatimes.com

I-T SLEUTHS PROBE NRI FUNDS IN IPL

The Income Tax (I-T) department has requested the Finance Ministry to approach the authorities in Switzerland and other tax havens for details of overseas accounts of "non-residents" who invested in the Indian Premier League (IPL). The step is part of the ongoing investigations into investment of foreign funds in the IPL. The investigating unit in Mumbai has written to the Foreign Tax Division in the Central Board of Direct Taxes (CBDT) to obtain information about "foreign entities in IPL teams" after its probe into the cash-rich tournament found investments by "non-residents" especially in teams like Kings XI Punjab, Rajasthan Royals and Royal Challengers Bangalore. The Ministry has also written to the Reserve Bank of India (RBI) seeking information on the foreign investments brought by all the IPL franchises and have asked the Enforcement Directorate to check violations under the Foreign Exchange Management Act (FEMA). "The bid documents reveal huge funding by NRIs in various IPL franchises. But the documents do not reflect the entire financial details of these individuals," a top I-T officer said. In order to establish the amount of tax evasion, if any, the department has approached the concerned CBDT wing to execute Direct Taxation Avoidance Agreements (DTAA) with countries such as Switzerland, Germany and Mauritius to facilitate exchange information, the officer added. The Foreign Tax Division in the Finance Ministry looks into the tax liabilities and evasion by non-residents and foreigners in respect of both the countries under the agreements. The overseas remittances of certain IPL franchises are also under probe, I-T sources said. The I-T department had collected documents related to bidding, payment of taxes and various other financial details during its countrywide survey of various IPL franchises, with the first such operation being conducted on April 15 at the BCCI and IPL premises, including the office of suspended IPL Commissioner Lalit Modi. The I-T department in Mumbai has created a special cell of officers to monitor the IPL as the metropolis hosts the IPL marketing and advertising offices. Almost eight investigation wings of the department in various cities like Chandigarh, Kochi, Jaipur and New Delhi are also probing the taxation aspects of the IPL transactions. - www.business-standard.com

IRFC PLANS TO FLOAT TAXFREE BONDS IN 2010

Indian Railway Finance Corp (IRFC) is in talks with the finance ministry to issue tax free bonds of about Rs3000 crore ($638 million) in 2010, its managing director told Reuters on Monday. In February, the government had greenlighted the IRFC to float Rs5000 crore of tax free bonds in the fiscal year to March 2010, but the financing arm of the ministry of railways could issue only a portion of the sanctioned bonds. "We have asked the ministry of finance for renewal... that we are expecting by the end of this month," R. Kashyap said in an interview. The annual railway budget for 2010/11 has allowed the IRFC to borrow Rs9120 crore, which Kashyap said could rise to over Rs10000 crore. "Ministry of Railways for now has given this target. But the indications are, if their requirements are higher, they may want us to borrow more from the market." The firm is also frontloading its borrowing programme in anticipation of a rise in long term interest rates in the second half of the fiscal year and has borrowed Rs2855 crore so far in the current fiscal year. Kashyap said the firm is looking to float taxable bonds of Rs500 crore by early July, having various tenures between 5 and 15 years, with coupon rates expected in the range of about 8% to 8.5%. The firm also has the permission to raise $500 million from offshore markets in the current fiscal and is looking to raise up to $250 million in the first tranche by mid-July. Kashyap said the firm has received 16 offers for the overseas fund-rasing plan, but is still to decide on the instrument. "For ECB (external commercial borrowings), things had gone better. But then because of the European crisis, the bond market is not that favourable at the moment," he said. The firm is looking to complete the remaining portion of the offshore borrowing before Christmas this year, Kashyap added. - www.livemint.com

AUSTRALIA OFFERS TO EXPLAIN SUPER PROFIT TAX TO INDIAN FIRMS

Australia has invited Indian companies that are scouting for mines here to join a consultation process to explain its proposed controversial "super profit‘‘ tax on domestic mining companies. "Well, we currently are on a consultation process with the mineral and energy industry. Indian companies that are interested, there is a consultation process and they are very welcome to approach the treasury consultation process as well or they need to approach the Minister for Mineral and Resources for information," the Australian Foreign Minister, Mr Stephen Smith, told newspersons at the sidelines of a India-Australia conference on energy and minerals. The resource super profit tax is a 40 per cent levy on mining profits, which is in addition to the usual company income-tax and is expected to come into effect from July 1, 2012. Earlier, the NTPC Chairman and Managing Director, Mr R.S. Sharma, said his company was extremely "concerned" about the proposed tax but said that it has no choice but to go ahead with buying stakes in Australian coal mines. He said he is meeting some of the Government officials here as well as companies tomorrow on this issue. "We hope to get some concessions at least," he said. Other opportunities But the Coal Secretary, Mr P. Uma Shankar, said he expected Indian companies to look for opportunities in other countries as well to spread its risks. "Indian companies just won‘t buy only Australian companies but mines in other countries as well," he pointed out. India expects to bridge the shortfall of about 80 million tonnes of coal through imports. Mr Smith said the proposed tax will not deter companies from investing into the country, even though there are reports that some of the mining companies have in fact deferred their plans to pump in more funds into their ventures here. "No. Industry will continue to grow in strength to strength." Policy changes "Historically, in Australia, we have seen introduction of changed policy arrangements. I am personally old enough to remember over a period of time where the introduction of new environment regulations were said to be something that would deter investments, where the introduction of the petroleum resources tax were said to deter investments," Mr Smith added. He said whenever a new law is proposed, it is followed by public debates and this was one such case. "We have always these robust conversations in Australia when there are suggestions of the new tax. But we are working very carefully with the industry. We want to engage the industry in close consultation process," he added. Mr Smith pointed out that there have been a range of policy changes over a decade where "people saw a surge of investments that was transpired when the petroleum resource tax was introduced in the 1970s." "People said that there would be a fall in investment resources while in the last six months, we have seen the largest petroleum resources contract through the Gorgon project." Mr Smith said with deman from China, India and other countries increasing, the mining industry will continue to grow here. "There will continue to be very strong investment both from domestic but also overseas industries because of the prospects and potential of the industry remains very strong because of growing markets in China, in India and also in Africa (is) very strong indeed." he said. - www.thehindubusinessline.com

FINANCE MINISTRY SETS UP EXPERTS PANEL FOR UNIQUE PROJECTS

The Finance Ministry has constituted a seven member Technical Advisory Group for Unique Projects (TAGUP) under the Chairmanship of Mr Nandan Nilekani. This move follows an announcement in Finance Minister, Mr Pranab Mukherjee‘s Budget speech (2010-11) that he proposed to set up a Technology Advisory Group for unique projects. The objective is to ensure an effective tax administration and financial governance system through creation of IT projects that are reliable, secure and efficient. 7 members The seven members are Mr Nandan Nilekani- (Chairperson); Mr C.B. Bhave, Chairman SEBI; Mr R. Chandrasekhar, Secretary, Department of IT; Mr Dhirendra Swarup, Former Chairman PFRDA; Mr S.S. Khan, Former Member, CBDT; Mr P.R.V. Ramanan, former Member, CBEC; and Dr Nachiket Mor, President, ICICI Foundation for Inclusive Growth. There are five projects of the Government, in the recent years, which involve complex system development. These are the Tax Information Network (TIN), the New Pension Scheme (NPS), the National Treasury Management Agency (NTMA), the Expenditure Information Network (EIN) and the Goods and Services Tax (GST). The TAGUP has been given six months time to make its recommendations on human resource including modification in Government rules, procedures etc; appropriate placement of tasks and allocation of responsibilities within Government; and contracting, commercial terms and charges including procedures etc for competitive bidding, pricing models and suggestions on user charges. Road map It has also been asked to provide a road map from start up to going concern for each of these projects, which would also focus on legal/regulatory change, if any; and technology architecture and ways for co-ordination between Centre, States and Local Governments. TAGUP will also look at the possibility of introducing Open Protocols and utilisation of open source components of other e-government projects; security challenges of malicious attacks on the system; accountability and self-corrective mechanisms; and protection of individual‘s right to privacy with focus on safeguards in the IT systems to protect legal and constitutional rights etc, an official release said. - www.thehindubusinessline.com

PRANAB PITCHES FOR FURTHER REFORMS IN ULIPS

Finance Minister Pranab Mukherjee has said unit-linked insurance plans (Ulips) need further reforms on the back of the changes already announced by the insurance regulator. The finance minister also hinted at a resolution to the dispute between Sebi and Irda over Ulip regulation. Speaking at the launch of the new headquarters of the Insurance Institute of India, Mr Mukherjee said: "Irda has taken some very positive steps in respect of regulations of Ulips which are in the interest of both the insurance industry as well as the policyholders. Some of these measures like cap on charges, extending the minimum term of the policy to five years, bringing the concept of compulsory annuitisation to pension policies and the proposal of fixing the maximum limits of surrender charges have brought in the much-needed reforms." He expressed hope that Irda would continue to bring in these reforms so that the interest of all the stake holders are secured. The finance minister‘s statement is seen as an indication that Ulips will continue to be regulated by the Insurance Regulatory and Development Authority, albeit with further changes in the product design. Earlier this year, Sebi had asked 14 insurance companies to stop selling Ulips as these were similar to mutual funds and came under the domain of the market regulator. However, the insurance regulator had asked life companies to continue selling Ulips as these products were approved by Irda. The government stance following the dispute was that it is an issue to be resolved between the two regulators. Earlier on Tuesday, the finance minister indicated that there will be some sort of resolution to the dispute. "We will resolve this issue soon," Mr Mukherjee said at a function in Mumbai. Speaking at the function, Irda chairman J Harinarayan said over 1 crore agents had qualified for the insurance agent‘s exam conducted by the Insurance Institute of India and around 40 lakh agents were active. The total premium was 261,000 crore, of which 55% was traditional products and 45% unit linked products. "There has been concern over commission paid to agents. But I am happy to say the ratio of commission to agency premium is a little over 7%. Considering the kind of sustained activity an agent has to undertake, the repeated visits that he has to make and the post-sale service he has to provide, the remuneration is not excessive. In that sense, there cannot be a lower cost of distribution than this," said the Irda chairman. - www.economictimes.indiatimes.com

STATE SEES RS 8,500 CR FROM EXCISE IN FY11

The Karnataka department of excise is targeting a growth of 23 per cent in its excise revenues, to Rs 8,500 crore, for 2010-11, compared to the previous year. A majority of the revenues are expected to come from the sale of Indian made liquor (IML). "The sale of IML has increased in the last couple of years after the state banned the sale of country liquor like arrack and toddy. We are taking some stringent measures to curb the sale of illicit liquor in the state," Renukacharya, minister for excise, said. Presently, there are 7,500 liquor shops operating in the state. Speaking to reporters after reviewing the progress of his department, here on Tuesday, he said the state is targeting Rs 1,000 crore in revenues from other sources like licence fee renewal, industrial alcohol among others. During 2009-10, the department saw a growth of 19 per cent in the excise collections, to touch Rs 6,900 crore, he said. The sale of IML has risen 30 per cent to Rs 5,797 crore and beer sales have jumped 9.3 per cent to Rs 489 crore. In volume terms, the state witnessed a 12.3 per cent rise, to 36.57 million cases. The beer sales went up to 1.90 million cases, showing a growth of 52 per cent over the previous year. During the first two months of the present year, the department of excise earned Rs 1,237 crore in revenues as against Rs 1,011 crore during the same period last year, showing a growth of 22.3 per cent. Arvind Jannu, commissioner for excise, said the department has not issued any licence for wine shops in the state since 1992, but is allowing the state-owned Mysore Sales International Ltd to open liquor shops across the state. So far, 78 such shops have opened throughout the state and another 385 shops are set to come up, he said. During 2009-10, the department booked 11,086 offences and arrested 4,245 persons engaged in the sale of illicit liquor. It also seized 196,000 litres of IML and 140,000 litres of spirits besides 80,000 litres of illicit liquor. It collected a fine of Rs 6.1 crore from these cases, he added. - www.business-standard.com

NO CLARITY YET ON SOPS TO SEZS IN DIRECT TAXES CODE

Even as Larsen and Toubro withdrew its proposal for an IT/ITeS Special Economic Zone (SEZ) citing uncertainty in tax treatment towards SEZs in the Direct Taxes Code (DTC), the Commerce Ministry has said the Finance Ministry is yet to consult it on the continuity of fiscal sops in the DTC to these tax-free zones. "We have been sending reminders to them (Finance Ministry) at least once every week. But so far they have not contacted us. We don‘t want the existing provisions (on income tax exemption to SEZs in the SEZ Act) to be changed as there is no basis for any such change," a Commerce Ministry official told Business Line. SEZs have attracted investments of Rs 1,48,489 crore so far. Officials said most of these investments have come in due to the fiscal concessions. The draft DTC does not have any clarity regarding income tax exemption to SEZ units, they said, warning that if the exemption is not continued for SEZ units, it would virtually amount to "killing the SEZ scheme." The Board of Approval (BoA) for SEZs on Tuesday approved the withdrawal of formal approval to L&T‘s IT/ITeS SEZ in Mumbai. L&T had said due to the slowdown and "uncertainty in tax provisions under DTC and Goods and Service Tax regulations, it has been decided to make these investments in the DTA (or Domestic Tariff Area)." DTA, the area outside SEZs, is subject to taxes and duties. Taking into account the difficulties faced by developers due to the economic slowdown, the BoA approved requests to withdraw four SEZ proposals, including L&T‘s as well as de-notification of SEZs by Bata India and NSL SEZ (Chennai). It also granted extension of formal approval to over 30 proposals including that of Reliance Haryana SEZ. Dr L.B. Singhal, Director-General, Export Promotion Council for EOUs and SEZs (EPCES), said, "If there is no income tax exemption, no entrepreneur will set up a unit in SEZs. Naturally, no developer would want to develop SEZs in such a situation." He said many are now holding back their investments in SEZs due to the uncertainty created by the DTC. Under the SEZ Act, units get total income tax (I-T) exemption on export profits for the first five years, and 50 per cent exemption for the next five years. The developers get 100 per cent I-T exemption for a block of consecutive 10 years of the first 15 years. - www.thehindubusinessline.com

New Changes in TDS Rules-CBDT Press Release No. 402/92/2006-MC

CBDT Press Release No. 402/92/2006-MC (27 of 2010), dated 2-6-2010

The Central Board of Direct Taxes (CBDT) have amended the Rules relating to TDS provisions date and mode of payment of tax deducted at source (TDS), TDS certificate and filing of ‘statement of TDS’ (TDS return) vide Notification No. 41/2010; SO No. 1261(E) dated 31.05.2010. The amended rules will apply only in respect of tax deducted on or after 1st day of April 2010.

Forms for TDS certificate have been revised to include the receipt number of the TDS return filed by the deductor. Now the Tax-deduction Account Number (TAN) of the deductor, Permanent Account Number (PAN) of the deductee, and Receipt number of TDS return filed by the deductor will form the unique identification for allowing tax credit claimed by the taxpayer in his income-tax return.

Government Authorities (Pay and Accounts Officer or Treasury Officer or Cheque Drawing and Disbursing Officer) responsible for crediting tax deducted at source to the credit of the Central Government by book-entry are now required to electronically file a monthly statement in a new Form No. 24G containing details of credit of TDS to the agency authorised by the Director General of Income-tax (Systems). 
Due date for furnishing TDS return for the last quarter of the financial year has been modified to 15th May (from earlier 15th June). The revised due dates for furnishing TDS return are

Due date for furnishing TDS certificate to the employee or deductee or payee is revised as under :

Sl. No.	Category	Periodicity of furnishing TDS certificate	Due date
1.	Salary       (Form No.16)	Annual	By 31st day of May of the financial year immediately following the financial year in which the income was paid and tax deducted
2.	Non-Salary (Form No.16A)	Quarterly	Within fifteen days from the due date for furnishing the ‘statement of TDS’

TWO NEW SCHEMES ON FILING RETURNS LAUNCHED

To facilitate companies not actively filing their statutory returns such as the balancesheet or annual returns, the ministry of corporate affairs has introduced two schemes-the Easy Exit Scheme and the Company Law Settlement Scheme. The first is for defunct firms that want to get their names stricken off the Register of Companies, applying mainly to those that have not been active in the businesses they had intended to do. The second grants immunity to firms from prosecution by charging an additional fee of 25% of the actual additional fee payable for filing belated documents. Both schemes start from 30 May. - www.livemint.com

GOVT TRIES TO PLUG ANOTHER TAX LOOPHOLE

Panel gives report on capping firms‘ debt-equity ratio for tax purposes. Companies may soon find it unviable to take large loans for claiming tax deduction on the interest paid on debt. The government is planning to introduce ‘thin capitalisation‘ rules to check such tax avoidance, by capping the debt proportion that will qualify for tax deduction. Thin capitalisation is where a higher proportion of funds are infused into a company in the form of debt rather than equity, because interest paid on loans is deductible for calculating taxable profits, whereas dividends are paid post-tax. With thin capitalisation rules, tax authorities will be able to reclassify some part of the interest paid as dividend and deduct tax on it. "A committee, headed by a director general of income tax, was asked to frame thin capitalisation rules. It has submitted its report. The rules are seen more as a mechanism for checking tax avoidance rather than revenue generation," said an official in the finance ministry on condition of anonymity. Private sector analysts, however, say infusing funds through debt or equity into a company is purely a financing decision, and thin capitalisation rules should not affect investment into the country, provided the government limits the debt to equity ratio in accordance with the needs of various sectors. "It may affect foreign investment to the extent that the cost of financing equity is higher than debt. (But) If the rules are not framed arbitrarily, there will not be much impact, because taxation benefits alone do not drive investment decisions," said Amitabh Singh, partner, Ernst & Young. Countries such as the US, Poland, Hungary, Germany, the Netherlands, Russia and China already have thin capitalisation rules. Most countries define a maximum debt to equity ratio beyond which excess interest paid is disallowed, or a penalty is imposed, or interest is reclassified as debt. While some countries limit the amount a company can claim as a tax deduction on interest paid to a cross-border or related company, some disallow interest deductions above a certain level from all sources. In India, the Foreign Investment Promotion Board (FIPB) has defined the debt to equity ratio limit for the automatic investment route in various sectors. However, companies can always go for a higher debt to equity ratio after taking approval from FIPB. Moreover, FIPB norms are only for checking foreign investment and this does not apply to domestic investors. Thin capitalisation rules will apply to investments from all sources. The first draft of the new Direct Taxes Code also tried to highlight the issue to some extent. It had proposed that any arrangement entered into by a person for availing tax benefits would be declared an impermissible avoidance arrangement, unless the person obtaining the tax benefit proved otherwise. - www.business-standard.com

I-T DEPT TO OPEN AAYAKAR SEWA KENDRAS IN NINE MORE CITIES

By the end of this fiscal, income tax payers will be able to get all their problems relating to filing of returns and obtaining of refunds, among others, addressed at nine more help centres. The Income Tax Department has decided to set up help centres at 12 cities, including Kolkata, Coimbatore and Surat, to address the problems of tax payers. At present, help centres exist at three places in the country. The centres, called Aayakar Sewa Kendras, are currently located in Pune, Chandigarh and Kochi. "We are planning to extend Aayakar Sewa Kendras to 12 cities, including Ludhiana, Kolkata and Indore, in the current fiscal," a finance ministry official said. The centres would also be set up at Bhubaneswar, Guwahati, Surat, Ahmedabad, Udaipur and Coimbatore. A one-stop shop for taxpayers to obtain the services of the Income Tax department, the kendras help redress the complaints of taxpayers and prevent similar grievances in the future. The centre addresses almost all I-T related queries, including returns and refunds, the official said. At present, over 3.5 crore people come under the income tax net in the country. - www.economictimes.indiatimes.com

FM HINTS AT MORE TAXES NEXT YEAR TO CHECK FISCAL DEFICIT

Finance Minister Pranab Mukherjee said today the lesson India must learn from the Greek crisis is that it cannot stray from the path of fiscal discipline. Greece paid the price for being fiscally profligate and India could not afford to keep its deficit unchecked, he said. In an interview to Business Standard, Mukherjee reiterated his resolve to bring down the government’s fiscal deficit this year and in the next few years, but hinted at more taxation measures next year to boost revenues to compensate for the loss of one-time benefits he enjoyed from 3G auction proceeds and other expenditure savings in 2010-11. The interview was held just a day before the United Progressive Alliance (UPA) government‘s first anniversary in its second tenure. It covered a wide range of issues from oil sector reforms, disinvestment, growing differences over jurisdiction between financial sector regulators and the future course of reforms. On being asked why the government had taken no steps to raise oil prices, Mukherjee said the government had already restructured the duties on petroleum products as the first step and now the question of linking the domestic prices to the international market was being discussed by a group of ministers. Mukherjee ruled out privatisation of state-owned enterprises and said the government’s agenda on this front was restricted only to reducing the government stake in public sector undertakings up to 51 per cent to help them become more efficient and discover their true prices in the stock market. He was confident of meeting his target of rolling out the new direct taxes code and the goods and services tax (GST) regime from the next financial year. “The new direct taxes code will be in Parliament during the monsoon session,” he said. On inflation, Mukherjee said his worry arose from the fact that food inflation had begun affecting the general inflation rate. But, what gave him comfort was the decline in the prices of several food items over the last three months. The finance minister also said the government was prepared to face the challenges arising out of any sharp rise in capital inflows, though he declined to comment on the desirability of levying any foreign transaction tax to stem such flows. – www.business-standard.com

FM VOWS PAYOUT BOOST IN RENEWED GST PUSH

Finance minister Pranab Mukherjee on Friday reached out to his counterparts in state governments to energise talks on unified goods and services tax (GST), promising “robust compensation” to ensure timely roll out of this crucial indirect tax reform. “He (Mr Mukherjee) communicated to us that he is prepared to go beyond it (the 13th Finance Commission recommendation of Rs 50,000 crore compensation over next five years),” said Asim Dasgupta, West Bengal FM and chairman of the empowered committee of state finance ministers. “A finance ministry representative communicated that the union finance minister has sent a message... he will stand by states during implementation of GST to protect any revenue loss,” he said.However, a central government official said the offer for compensation was contingent to states accepting the Centre’s suggestion of common threshold, common exemption list and uniform goods and service tax rate. The official, however, did not elaborate on what could be the likely compensation, saying it would depend on the agreed GST rate. The draft of the proposed constitutional amendments required for the implementation of GST will be sent to state finance ministers over the fortnight by the law ministry, he added. Constitutional provisions will have to be amended to empower the Centre to tax goods at the trade level instead of factory gate and states to tax services. States have to be compensated for any revenue loss on account of implementation of the proposed goods and services tax, which will replace most indirect taxes in the country, both at central and state levels. The Centre has also assured states compensation on account of central sales tax loss for current financial year going beyond the agreed deal. This clearly indicates the Centre’s willingness to go the extra mile to take states on board to roll out GST on the scheduled date of April 1, 2011. “The Centre has an open mind on this. They have asked us to suggest a scheme of compensation which can be deliberated upon for final view,” Mr Dasgupta said. The CST, imposed on inter-state movement of goods, was cut from 4% to 3% in 2007-08 and then to 2% in 2008-09. States expressed mixed feelings on the fresh offer from Mr Mukherjee. Bihar deputy CM Shishil Modi said assurance on compensation is a positive movement. But some non-congress ruled states remained sceptical. MP FM Raghavji expressed concerns on constitutional amendment leading to the creation of FMs council with Union finance minister as chairman and state FMs as members. , to decide on changing GST rate. Madhya Pradesh joined Punjab and Haryana to seek purchase tax on wheat outside GST. Similar views were also expressed by Chhatisgarh, which has imposed a purchase tax on rice. – www.economictimes.indiatimes.com

INDIAN OFFICIALS TO VISIT MAURITIUS TO NEGOTIATE CHANGES IN TAX TREATY

A team of Indian officials will visit Mauritius soon to negotiate changes to a 28-year-old tax treaty, in a renewed attempt to restrict its benefits to genuine residents of Mauritius. Over 40% of foreign investment inflows to India is routed through Mauritius, a significant portion of which is believed to be third country funds and Indian money routed through the island nation to avoid taxes. India loses over $600 million in revenues annually due to the tax treaty with Mauritius. The India-Mauritius tax treaty provides that capital gains from sale of securities in India can only be taxed in Mauritius. Since Mauritius does not tax capital gains, many investors prefer to route investments through that country. “A team is going to Mauritius... we are on the job,” finance minister Pranab Mukherjee told ET. But the process could take as much time as negotiating a new treaty, he cautioned. “It takes time. After all every country is a sovereign and it has its own laws... it may not be able to do it at a speed we want,” the finance minister said. He, however, did not provide details of the changes that will be sought by Indian negotiators. With the ruling party in Mauritius coming back to power in elections held in the first week of May, Indian tax authorities view this as an opportune time to kickstart talks. Mauritius resisting attempts The tax authorities are mostly concerned about treaty shopping, the practice of routing third country investment through Mauritius to avoid paying taxes. Round-tripping of funds, or Indian money being invested in India through Mauritius, is another concern for India. Mauritius has been resisting Indian attempts to tweak the treaty. Its Financial Services Commission (FSC) has proposed tighter norms to check misuse of the treaty by Indian entities.The urgency to amend the rules came after Vodafone’s acquisition of Hutch a couple of years ago. The transaction was executed through subsidiaries domiciled in Mauritius and Cayman Islands. Indian tax authorities are claiming a tax of about $1.7 billion. “It is no secret that India, as part of its treaty policy, has been insisting upon a limitation of benefits clause with all nations. We saw that change in the UAE treaty and there is evidently pressure on Cyprus & Mauritius,” said Mukesh Butani, partner and tax practice leader at BMR Advisors, who advises the Mauritius Investment Board. “What is more important is an anti-abuse provision to avoid treaty shopping,” he said. Tax authorities have often raised their concerns when the Foreign Investment Promotion Board takes up investment proposals by overseas firms. The board, however, has been shooting down the revenue department’s objections. India is keen on inserting a clause similar to the limitation of benefit clause in the India-Singapore treaty, which provides for an expenditure test as a proxy for demonstrating commercial substance. The aim is to satisfy that investment routed through Mauritius has aenuine reason for coming through the country. India’s tax treaties negotiated after 2004 include anti-abuse rules like limitation of benefits provisions. Sudhir Kapadia, tax market leader at consulting firm Ernst & Young, cautions that the new rules could impact legitimate investments from Mauritius. “Mauritius itself has strengthened its tax residency requirements to ensure a measure of commercially relevant activities being carried out in Mauritius,” he said. An income tax official is being posted at Port Louis, Mauritius to facilitate greater exchange of information between the two countries. China, which also has a tax treaty with Mauritius, amended it in 2006 to insert limitation clauses. India, however, caved in to diplomatic pressure and put on hold plans to renegotiate the treaty. Recently, China introduced general anti-avoidance rules to prevent tax avoidance. Indonesia, meanwhile, scrapped its tax treaty with Mauritius. India is also seeking to amend tax treaties with some 65 nations to ensure greater flow of information. Last year’s Lok Sabha elections witnessed a high-pitched debate on the issue of black money and tax havens. Mauritius, incidentally, does not figure in the list of non-cooperative jurisdictions in the list of tax havens compiled by the Organisation for Economic Cooperation and Development. – www.economictimes.indiatimes.com

MORE FOR LESS: TAX SEARCHES DOWN, BUT SEIZURES SHOOT UP

The Income Tax (I-T) department seems to have mastered the art of getting more for less. No strong-arm tactics here; it is just that the department has improved what it calls the effectiveness of its search operations through better targeting. Consider this: While the amount of assets seized more than doubled in the past four years, the number of raids came down substantially. The I-T department had searched 529 groups in 2006-07. This dropped to 454 in 2007-08, 429 in 2008-09 and 409 in 2009-10. The value of assets seized in a year, however, more than doubled from Rs 366 crore in 2006-07 to Rs 786 crore in 2009-10. In 2007-08 and 2008-09, the assets seized were worth Rs 427 crore and Rs 550 crore, respectively. “The effectiveness of the search has increased because we are now acting on more specific information. The I-T infrastructure has become more sophisticated and the latest tools used by our officers, such as Integrated Tax Payer Data Management System (ITDMS), are throwing up excellent cases (read: big fishes),” said a finance ministry official on condition of anonymity. A tax expert associated with an industry chamber said the yield per search had gone up in the last few years because the finance ministry was more keen on high value searches. He said in many cases the department first conducts a survey to get an assessment of the amount involved in the case and if there is huge money involved, the investigation often leads to a search and seizure. The number of searches has also come down because the method of filing income tax returns has been simplified, resulting in better tax compliance, the official said. The government is using ITDMS for making 360-degree profiles of high net worth assesses. It is comparing data from various sources like the online tax accounting system, annual information return, assessment information system and tax deducted at source. The government has also set up cyber forensic labs in Mumbai and Delhi for cloning digital data during search and survey operations. The labs have been found to be useful in breaking password, locating hidden, secret and deleted files. Tax officials are also using portable forensic labs to seal the data on the spot of investigations. Such labs were used during the investigation on the Indian Premier League. In a search operation (called raid in common parlance) conducted under section 132 of the Income Tax Act, investigators can enter the offices and residence of a company any time without notice and seize the documents. A director of investigation or commissioner of income tax can issue a warrant for such an operation. In a survey conducted Section 133, investigators enter premises in normal business hours. They cannot seize documents or take away any valuables with them, unlike in a search. A survey is conducted on the instructions of a joint commissioner or a joint director of the I-T department. – www.business-standard.com

INDIRECT TAX COLLECTIONS AT RS 2.46 LAKH CR

The Centre mopped up Rs 2.46 lakh crore from indirect taxes in the last fiscal, as much as Rs 2,000 crore more than the revised target, despite stimulus packages. But it collected Rs 3.80 lakh crore from direct taxes against the revised estimate of Rs 3.87 lakh crore, Union Revenue Secretary Sunil Mitra said at a function hosted by the Bengal National Chamber of Commerce and Industry today. However, Mitra clarified that these were only provisional figures, and the final ones would be released by the Controller General of Accounts. Sources said that direct tax collections would go up further when final figures come in. Estimates of indirect tax collections were revised down to Rs 2.44 lakh crore last fiscal, from the Rs 2.69 lakh crore estimated at the time of the Budget. While the customs duty mop-up target was scaled down by Rs 3,523 crore to Rs 84,477 crore, excise duty collection was reduced by Rs 4,477 crore to Rs 1.02 lakh crore. Similarly, service tax collection estimates were cut by Rs 7,000 crore to Rs 58,000 crore. Sources said this had happened because the cut in excise duty by 6 per cent and service tax by 2 per cent had hit the exchequer drastically. Besides, the slowdown in demand had cut the need for greater imports, affecting customs duty collections. The government had set the target for direct tax collection at Rs 3.70 lakh crore in the 2009-10 budget, but later revised it to Rs 3.87 lakh crore. For the current fiscal, the government has estimated that Rs 3.15 lakh crore would be collected through indirect taxes. Out of this, Rs 1.32 lakh crore is likely to come from excise duties, Rs 1.15 lakh crore from customs and Rs 68,000 crore from service tax. The government, during 2010-11, proposes to mop up about Rs 4.30 lakh crore through direct taxes. Of this, Rs 1.28 lakh crore is expected from income tax, despite widening of tax slabs, Rs 3.01 lakh crore from corporate tax, and Rs 603 crore from wealth tax. – www.financialexpress.com

PENSION SCHEMES TO CARRY HEALTH COVER TOO

Retail investors of unit-linked pension plans are set to enjoy the benefit of health cover with pension schemes as the insurance regulator plans to unveil a new set of rules giving more flexibility to insurers. The health cover will replace or complement the compulsory life cover that insurers have to offer. “We are planning to mandate companies to offer either a health cover or life cover or annuities with pension schemes. Insurers will have to mandatorily offer at least one of them,” said a senior official who did not wish to be named. These companies will also have the flexibility to offer all the three benefits. Health policies are insurance products. So the proposal could help Irda defend its position that Ulips are not pure investment schemes, said an insurance analyst. The Insurance Regulatory & Development Authority (Irda) and Securities & Exchange Board of India (SEBI), the market regulator, have been locked in a battle over who will regulate Ulips. These products are similar to MFs, with an insurance cover thrown in. “A person who is looking to save for his retirement may also want health benefits, given the rising costs of health care. The proposed move will also propel the growth of long-term health care,” said IDBI Fortis Life Insurance MD & CEO GV Nageswara Rao. Life companies have been hoping for a relaxation of the requirement of compulsory life cover on pension products. “Those who buy pension plans do so to cover the risk of living too long and forcing them to buy life insurance may defeat the goal of buying insurance,” said a senior executive at a life company. According to SB Mathur, chief executive of the Life Insurance Council, an umbrella body for insurers, the mortality charges will be relatively high for a person who is 50 years and above, making a pension plan with a mandatory life cover quite expensive. Earlier this month, Irda tightened rules on Ulips after a public spat with Sebi over regulation of the product. The rules, which come into force from July 1, make it mandatory for insurance companies to offer life cover on all Ulips, including pension products. This means companies cannot sell pension schemes without a life cover. Irda’s latest plan is to give more flexibility to insurers and allow them to bundle health covers with pension plans. India’s insurance market is under-penetrated, with less than 15% of the population having a health cover in some form or other. The coverage of risk protection against major health-related expenditure is also low. The idea is to improve health insurance penetration, said an Irda official. The rules also mandate insurers with pension schemes to convert the accumulated fund value into an annuity at maturity. The policyholder will have the option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of maturity. Insurers offering the benefit of annuities may not have to bundle life or health covers with pension plans, if Irda implments a new set of rules for Ulips. – www.economictimes.indiatimes.com

STATES REJECT GST COMPENSATION OFFER

The States have more or less refused to accept the 13th Finance Commission‘s compensation package for implementation of the Goods and Services Tax. “States by and large differ with the Thirteenth Finance Commission on the GST compensation matter,” Dr Asim Dasgupta, Chairman of the Empowered Committee of State Finance Ministers, said here on Friday. Simultaneously, the Finance Minister, Mr Pranab Mukherjee, assured the empowered committee today that the Centre will stand by the States to ensure that the revenue loss, if any, on GST introduction is compensated fully. “This is a very positive suggestion coming from the Union Finance Minister. We will be having a meeting with him within about fortnight to discuss the GST compensation and also the CST compensation for the current fiscal,” Dr Dasgupta told reporters after a three-hour meeting of the Empowered Committee here. Dr Dasgupta also said that the Union Finance Minister has communicated to the Empowered Committee that he was prepared to go beyond the Rs 50,000-crore compensation (over five years) mooted by the Thirteenth Finance Commission. The Empowered Committee Chairman, however, declined to comment on the compensation model that would be suitable for the States or the estimated revenue neutral rates at the States level. On CST (Central Sales Tax) revenue loss compensation for 2010-11, Dr Dasgupta said that the Centre has now asked the Empowered Committee to suggest a scheme of compensation for this purpose. As such, for the current year, there was no concept of Central compensation for CST revenue loss. He also said that the Law Ministry was expected to give its final clearance on the draft Constitutional (amendment) Bill in 10 days. “We will then look at it and arrive at a view,” Dr Dasgupta said. On value added tax (VAT) revenue growth for 2009-10, he said that the growth rate was close to 20 per cent. Meanwhile, official sources said that the Centre continues to stick to its stand of having a common threshold for both State GST and Central GST. Some States like Madhya Pradesh want the Empowered Committee to stick to its stand to keep electricity duty, stamp duty, motor vehicle tax, entry tax and entry tax in lieu of Octroi outside GST. – www.thehindubusinessline.com

NO TIMEFRAME TO RESTORE EXCISE DUTY BENEFITS IN NE: CENTRE

Union industry minister Anand Sharma on Saturday disappointed the industry of North-East as he could not assure any timeframe to restore the excise duty benefits that the industry of the region enjoyed under the North-East Industrial and Investment Promotion Policy (NEIIPP) 2007, till March 2008. "I can not give you any timeframe. My ministry has taken up the matter with both the prime minister and finance minister. We are trying to resolve it," said Sharma. When reminded that more than two years had passed and the matter remained unaddressed, the minister could only say that "quick follow-ups" will be done with finance ministry. Assam‘s industry minister Pradyut Bordoloi too said at the industry ministers‘ conclave, in the presence of Shamra, that "dilutions in NEIIPP was affecting industry of the region." The centre, through a notification on 27 March, had withdrawn the total exemption of excise duty paid from the personal ledger account (PLA) and allowed exemption only up to 56 per cent of total excise duty paid from PLA on medicines, cosmetics and toiletries. The ratesvary from industries to industries. Since then, the industry of the region has been demanding withdrawal of the notification as it was affecting balance sheets of companies and also value-addition in the economy in the larger context. The notification has affected more or less all the units in North-East invarying degrees. Local entrepreneurs say that it has now become difficult for industries in North-East to arrive at more value additions. – www.business-standard.com

SEBI MOVING ON SECONDARY MKT REFORMS

Liquidity, derivatives part of various items on agenda. The capital markets regulator, the Securities and Exchange Board of India (Sebi), has set its sight on reforms in the secondary capital market. The agenda includes improving liquidity in illiquid stocks, diversifying the derivative segment and making ownership of security market infrastructure companies such as stock exchanges and depositories more transparent and increasing the net worth of market intermediaries, said a Sebi official. It feels this would be timely, as competition among exchanges is set to increase in the coming months, with many new players aspiring to start trading in various segments. Sebi had already asked stock exchanges to improve liquidity, as 90 per cent of the turnover comes from just 100 traded companies. There are thousands of companies where liquidity is shallow and buyers don’t get required quantities without significantly influencing prices. Similarly so, when one wants to sell. Stock exchanges have made some beginning by sponsoring research from independent agencies like Crisil for companies not traded and not researched by analysts. The National Stock Exchange (NSE) has already sponsored research of companies listed on the Madras Stock Exchange, with which it has signed an agreement; those listed on MSE can be traded on NSE, too. It has plans to cover NSE-listed companies, too. Sponsoring independent research for less liquid companies is new to India but the London Stock Exchange sponsors research for companies listed on its AIM segment. The Singapore, Hong Kong and Malaysia stock exchanges also do this. Both NSE and the Bombay Stock Exchange, the two main ones, are also working on measures to improve liquidity in low-traded companies. Sebi has also begun the process to diversify derivative segments. In the next few weeks, options contracts will be permitted in the currency futures segment in dollar-rupee contracts. Options are very active on the equity derivative segment of NSE. Next in derivatives would be trading in the volatility index. Only NSE is eligible for this and in the next few weeks, it plans to start disseminating the index on a real time basis and in a month or two, trading will start. Volatility is an indicator for market movement and is decided based on trading in call and put options. Settlement rules Sebi has also allowed in-principle physical settlement in equity derivatives. The regulator has already initiated consultations for this. The issue being contemplated is whether options contracts can be settled in delivery. This is permissible abroad but in India, according to data compiled by Sebi, out of total derivative volumes, options constituted 58 per cent. This mainly comprised trading in index options (55.6 per cent). Most stock options are illiquid and hence delivery-based settlement is difficult. The first round of meetings with exchanges to deliberate this have been completed. – www.business-standard.com

DIRECT TAXES CODE REVISED DRAFT IN JUNE

The Centre will come out with a draft revised version of the Direct Taxes Code (DTC) for public consultation by the first week of June, according to the Secretary, Department of Revenue, Union Ministry of Finance, Mr Sunil Mitra. The revised version of the DTC, which will replace the Income-Tax Act, 1961, aims at streamlining direct tax rates and simplifying the tax structure. The Code would be finalised by the end of June and likely to be tabled in the monsoon session of Parliament. Addressing newspersons at a meeting organised by the Bengal National Chamber of Commerce and Industry here on Monday, Mr Mitra said, the Centre exceeded the revenue collection target for the year 2009-10. The Centre mopped up Rs 6,26,000 crore in 2009-10 as total taxes, surpassing the budgetary target of Rs 6,14,000 crore. Tax collection Of the total tax collection in 2009-10, the share of direct tax was close to Rs 3,80,000 crore, against a target of 3,70,000 crore. The indirect tax collection was about Rs 2,46,000 crore, against Rs 2,44,000 crore, he added. “The Revised discussion note on the Direct Taxes Code will be revealed in the first week of June and will remain open (for public comments) for 15 days. By the end of June, the drafting of the legislation should be complete. The legislation should be in Parliament by the monsoon session,” he said. Parliament would put in place its suggestions on the Code by the Winter Session and by the next Budget Session, the legislation might become a law, he added. GST Compensation Answering a question on Centre‘s compensation to the States for loss of revenue in the initial years on account of implementation of the goods and service tax, Mr Mitra said, “We have accepted the 13th Finance Commissions‘ report, but if there is requirement beyond the minimum sum proposed by the Commission, the Centre will compensate it.” he said. The 13th Finance Commission had mooted a minimum of Rs 50,000-crore compensation over five years, which the Empowered Committee of State Finance Ministers had rejected saying that the amount was lower than expectations. There were, however, three outstanding issues concerning the rolling out of the GST, the threshold limit on taxes, the tax rate and the taxes to be subsumed under the new regime, Mr Mitra said. – www.thehindubusinessline.com

FINMIN FLOODED WITH COMMENTS ON TAX CODE

Redrafting the Direct Taxes Code (DTC) is proving to be an uphill task for the finance ministry, bombarded with comments from various stakeholders. The Central Board of Direct Taxes (CBDT) has received about 10,000 suggestions on the code, which seeks to replace the Income Tax Act of 1961. “We have got approximately 10,000 suggestions in the form of emails, letters and presentations. Out of these, only about one-fourth of the comments were sent online. Maximum queries are on Minimum Alternate Tax (MAT) and the exempt-exempt-tax (EET) regime. Our officials have to go through all the suggestions,” said a ministry official on condition of anonymity. The suggestions, most of which are “repetitive”, are being vetted by a seven-member task force on DTC. The task force was formed only two months ago and is left with just two weeks to go through the suggestions and take them into consideration while drafting the code. Revenue Secretary Sunil Mitra has already said the revised draft of DTC would be released for public debate in the first week of June. The government plans to introduce the code in the monsoon session of Parliament, where it will first be taken up by the Standing Committee on Finance. The official said comments were received from various quarters, including government departments, and most of these revolved around the nine areas finance minister promised to revisit such as capital gains tax, Double Taxation Avoidance Agreement, taxation of charitable organisations and foreign companies in India, retirement benefits and income from house property. This is for the first time the finance ministry has received so many suggestions on a proposed legislation. Finance ministry officials say this is because before DTC, no other Bill was released for public discussion. Another official said the code at this stage was witnessing frequent changes and once a final decision was taken with regard to the amendments, more officials of CBDT would join the task force to prepare the draft in the stipulated time. “We will start the paperwork once things are finalised,” he said. The redrafted code would be open for public discussion for 15 days. Officials of the revenue department will have to take into account the comments received during this period while finalising the code. The task force, which operates from an income-tax office at Saket in South Delhi, consists of officers in the grade of commissioner and joint commissioner of income-tax posted as officers on special duty. – www.business-standard.com

REVISED DRAFT OF DIRECT TAXES CODE IN 1-2 MONTHS: CBDT CHIEF

The government on Wednesday said that the revised draft of the Direct Taxes Code (DTC), aimed at simplifying the tax structure, would be released for public debate in one-two months. "The revised draft will be ready within a month or two," Central Board of Direct Taxes (CBDT) chairman SSN Moorthy said on the sidelines of an Assocham seminar. In August last year, the government had released the draft DTC, which is being revised on the basis of inputs received from various stakeholders. The DTC is slated to be introduced in April next year and will ultimately replace the Income Tax Act, 1961, bringing all other direct taxes, including wealth tax, under its purview. Finance Minister Pranab Mukherjee had said that if a reasonable level of discussion happens on the code, a bill could be placed in the winter session of Parliament. However, the industry is not happy with some aspects of the draft DTC, especially the modified provision of the Minimum Alternate Tax (MAT), the amount that companies are mandatorily required to pay as tax. The draft suggested 2 per cent MAT on the gross asset value of a company, instead of the current levy of 15 per cent on book profits. Replying to a query whether the MAT issue will be addressed by the government, Moorthy said, "I won‘t commit on anything. All I can say is, all the issues raised by the industry and other representatives are under consideration and we are modifying the DTC." Besides MAT, the revised draft will also address other issues such as tax exemption for the housing sector and taxation of savings. - www.economictimes.indiatimes.com

INDIA-US TAX AUTHORITIES REACH SETTLEMENT ON TRANSFER PRICING ISSUE

The US and Indian competent tax authorities have reached a negotiated settlement on transfer pricing dispute in respect of certain captive software development units for the financial year 2004-05. The settlement has been reached through the mutual agreement procedure (MAP) mechanism provided in the Indo-US Double Taxation Avoidance Agreement (DTAA), sources said. Both the sides have agreed for full cost mark-up of 17.5 per cent for the financial year 2004-05, it is learnt. In the recent past, the Indian tax authorities had assessed the transfer price of contract software service providers, which have been compensated at full cost plus mark up, at a mark up of 25-28 per cent on costs for the financial year 2004-05. trendsetter "This negotiated settlement of 17.5 per cent mark up might be trendsetter for future tax assessments. There is some semblance of relief for the captive software service companies," Mr Rahul Mitra, National Leader, Transfer Pricing, PricewaterhouseCoopers (PwC), told Business Line here. Although the competent authorities have reached a negotiated settlement, it is for the concerned taxpayers to decide whether they would go with the settled mark-up or pursue regular appellate route like Tribunal for possible higher relief, Mr Mitra pointed out. The settlement is binding only for the financial year under dispute and would not apply for either the past or future years. The MAP is an alternative process of dispute resolution and is an option available to taxpayer in addition to and concurrently with the existing appellate process under the domestic law. Article 27 of the tax treaty between India and the US provides an option to a taxpayer that suffered a potential double taxation of approaching the Competent Authority for resolution under MAP. - www.thehindubusinessline.com

DIRECT TAX COLLECTION AT RS 3,78,350 CR IN FY

The direct tax collection for 2009-10 is Rs 3,78,350 crore as against the revised target of Rs 3.8 lakh crore. Speaking at the inaugural function of an Assocham conference on TDS, CBDT member Durgesh Shankar said the all-India direct tax collections have gone up from Rs 3,38,212 crore in 2008-09 to Rs 3,78,350 crore in 2009-10, registering a growth of 11.8 per cent. The share of TDS (Tax Deduction at Source) has not grown commensurately with the rise in direct tax collection in 2009-10, he said. The growth in TDS collection has dipped to 36.91 per cent from the earlier 38.49 per cent. The actual TDS collection has touched Rs 1,39,529 crore from Rs 1,30,172 crore, he said, adding that Bangalore has out-performed many other regions across the country in this regard. Stating that there is considerable potential for enhanced TDS collection, Shankar said that the government is bringing about a paradigm shift in the functioning of the I-T Department through e-filing, introduction of a tax information network and greater interaction with tax payers. Manual processing of I-T returns is being phased out gradually and e-filing of corporate returns has been made mandatory, he added. It is encouraging to see taxpayers taking the e-filing route, Shankar said, adding that central processing centres are being set up at different locations to ensure speedy tax refund. - www.economictimes.indiatimes.com

GOVT MAY SCALE DOWN TAX RELIEF PROPOSED IN DTC DRAFT

People with more than Rs 10 lakh annual income may not get the tax relief originally proposed in the Direct Taxes Code, as the Finance Ministry is for tweaking slabs across the board to offset concessions elsewhere. Under the first draft of DTC -- which when implemented will replace the archaic Income Tax Act, 1961 -- income of Rs 10 lakh to Rs 25 lakh was to attract tax at the rate of 20 per cent, but the final draft expected by June 15 may propose slapping 30 per cent tax on any income above Rs 10 lakh per annum, according to sources. This is to make up for the possible concessions the ministry may extend in other areas like exempting long term savings from tax at the time of withdrawal and the way Minimum Alternate Tax is calculated, sources said. As such, the relief on highest tax slab would not be much, since under the present regime too, 30 per cent tax is imposed on income of more than Rs eight lakh a year. Sources said the ministry is reworking the August 2009 draft following feedback from stakeholders. Under this, the 10 per cent tax proposed on income up to Rs 10 lakh may now stand scaled down to Rs five lakh a year. And income of Rs five-10 lakh a year would attract 20 per cent tax, although the first draft proposed slapping this rate on Rs 10-25 lakh income. However, the threshold level of income that is exempt from tax may be raised to Rs two lakh from Rs 1.6 lakh at present. The first draft had propopsed retaining the threshold limit at Rs 1.6 lakh. Sources said the government has to generate tax revenue for meeting its expenses and it might yield to the "genuine" demand of MAT being imposed on book profits rather than on gross assets as suggested in the first draft. "Gross assets also include the debt portion of a company and it is highly illogical to tax debt," said a source. MAT is a tax imposed on profit making companies who do not fall under any tax because of various exemptions. Further, the ministry might also agree to retain the current provision of following exempt-exempt-exempt (EEE) model for long term savings like provident fund and pension, instead of changing to exempt-exempt-tax (EET). EET model implies that tax would be imposed on long term savings at the time of withdrawal. On tax exemptions on home loans, on which the first draft is completely silent, sources said that there might be no rebates in the second draft as well, since the individual tax exemption limit on savings like insurance and others is proposed to be hiked to Rs three lakh from the current Rs one lakh. "This more than compensates" for doing away with tax rebates on the housing loans, the source said. - www.economictimes.indiatimes.com

CAG REPORT BARES LAPSES IN SERVICE TAX RECOVERY

The Comptroller and Auditor General of India (CAG) has highlighted glaring lapses in the recovery of service tax being administered by the Union Government, while the number of cases and amount entailed in demands for service tax outstanding for adjudication/recovery keep escalating. In its report on Indirect taxes - service tax, laid in Parliament recently, the CAG said a total of 88.286 cases involving tax of Rs 22,432.91 crore were pending with different authorities (Commissioners of Central excise/service tax have been authorised to collect service tax within their jurisdiction). Of this, a major chunk, amounting to 65 per cent or Rs 11,575 crore, was with the adjudicating officers of the department. A particularly distressing feature is pendency for recovery of demands has escalated from 19.470 cases in 2007-08 to 22,513 cases in 2008-09, an increase of 16 per cent. Recovery Stating that the Revenue Department detected a total of 6,512 cases of fraud/presumptive fraud during the years 2006-09 involving tax of Rs 5149.32 crore, the CAG said the department raised a demand for R 3,097.90 crore only and recovered barely 32 per cent or Rs 9,996.65 crore. What is worse is out of a penalty of Rs 405.48 crore that was slapped, the department could collect only Rs 5.99 crore or 1.48 per cent. The report said in the last five years, including the current year‘s report, the CAG has brought to focus short levy and other deficiencies in service tax machinery with revenue implication of Rs 1,084.33 crore in 569 audit observations. Of these, the Government had accepted audit points in 456 places, involving Rs 508.91 crore and had since recovered Rs 190.98 crore. In its 2009-10 report, the audit highlights 155 points with a revenue implication of Rs 375.55 crore, while the department has accepted till January 2010, the audit points in 130 cases involving revenue of Rs 305.13 crore and reported recovery of Rs 125.40 crore. Interestingly, in one draft audit point, though the reply of the department has not been received, the assessees have accepted the audit observations and disbursed tax of Rs 0.18 crore, while in another case, though the department has not accepted the audit point, the assessee has paid the tax of Rs 1.91 crore. Accordingly, tax aggregating Rs 127.49 crore has been recovered till January 2010, out of the Rs 375.55 crore highlighted through the report. Under-valuation of services The report said service tax totalling Rs 328.22 crore was not levied or was not paid by the registered service providers, recipient of services and unregistered service providers. In a few cases, it said, exemption from service tax totalling Rs 24.93 crore was availed of in contravention of notifications of the Central Board of Excise and Customs‘ instructions or without a notification being in place. Instances of under-valuation of services due to incorrect deduction of charges from assessable value, non- inclusion of tax deduction at source (TDS) in the grossvalue and adoption of lower value were also detected, the CAG said adding that service tax paid short in these cases amounted to Rs 8.16 crore. The CAG also found cases of incorrect self-assessment of tax, incorrect suo motu adjustment of service tax, suppression of value of services, service tax collected but not paid to the Government, non-monitoring of returns with service tax implications of a staggering Rs 12.38 crore. - www.thehindubusinessline.com

LIST OF TAX-EXEMPT PORT, AIRPORT SERVICES SOON

The finance ministry will soon put out a small list of essential services that will not be taxed at airports or ports, as it kicks off experimental enclaves of a comprehensive service tax regime that could be extended nation-wide later. This will only give marginal relief to consumers of services - travellers and businesses - as most of the services that are currently out of tax net will face tax. "We will tax even non-taxable services but spare some essential services such as medical, education, pollution control and emergency services such as fire fighting, special services provided at time of emergency landing from the tax," the official said. The change indicates the direction for the service tax regime as the country pursues a unified goods and service tax regime and a change from the positive list approach followed so far. Globally, governments follow a negative list approach -only services exempt from tax are mentioned explicitly and the rest face tax. The ministry is expected to issue the notification shortly, putting into effect the tax from June this year. Service tax is levied at the rate of 10%. The budget 2010-11 had proposed to tax all services provided at port and airports. Strictly interpreted this means any service provided at an airport or port will be levied service tax even if that service in itself may not be taxable elsewhere. This would have brought essential services such as health and education provided, otherwise not taxed, under tax net at port or airport. "Exempting essential services within the airport will be a positive step towards implementing a jurisdictional service tax in right earnest. It is essential that the term ‘service‘ be defined in the statute for proper interpretation of the definition of airport service," said Bipin Sapra, partner, Ernst & Young. Some other services that are provided and consumed at port and airport but are not generally taxed and also do not fall in the category of essential services will have to face tax, the official added. These include services such as short maintenance services. However, services consumed by exporters that are exempted from tax will continue to enjoy their tax-free status. Abatement available in some services such as transportation will also be available if such a service is provided at port or airport. - www.economictimes.indiatimes.com

BURDEN OF PROOF ON HAWALA ACCUSED & AIDE IN NEW TAX CODE

The income-tax authorities may soon get sweeping powers to investigate and prosecute those suspected of hawala transactions, creating a strong deterrent for the channel used extensively for money laundering. The proposed changes are likely to be included in the direct taxes code and could shift the burden of proof on the accused, said an income tax department official. Besides, this is the first time that the income tax law will seek to punish not just the tax evader but also the one who aids the process. "More powers are needed to collect information or to prove the act of," said S S Khan, a former member of the CBDT, who also headed a panel that examined all issues concerning hawala transactions. The board has also written to the law ministry for creation of special courts for fast-tracking prosecution of tax evasion cases, including hawala. Hawala refers to transfer of funds using informal channels such as money brokers usually overseas. It could also involve laundering money by channelling it through multiple accounts or showing non-existent sale or purchase of goods. The new code, which will replace the five-decade old tax law, is currently in the works and the CBDT is expected to put out the second draft of the proposed law in public domain in one or two months. Any person aiding in hawala process by allowing deposit from an unexplained source in his bank account or by issuing bills for sale of services or goods without actual transfer may be notified as a hawala entry operator, as per the proposal. Taxmen will also have powers to arrest without a warrant an accused found facilitating hawala. The proposal has its roots in an earlier CBDT committee set up to examine all the issues related to hawala transactions, difficulties in tackling hawala transactions and its operators. The onus of proving the source or origin of hawala transactions will lie with the accused , the official added. "While the provisions would have been designed to catch the ‘big fish‘, something as petty as a false expense claimed by an employee could invite imprisonment, both for him and the guy who helped him with the false receipt," said Amitabh Singh, partner, Tax & Regulatory Services, Ernst & Young suggesting that the provision may be harsh. In 2004, the finance ministry had amended the income tax law and made falsification of books of accounts or documents punishable by three months to three years of imprisonment. The ministry is now making the law more rigorous to tackle laundering. Moreover, with these changes, these offences will be cognizable. For cognizable offences, authorities do not require to furnish a warrant to carry out an arrest. The CBDT has also written to the revenue department to include offences such as concealment of income, not filing income tax returns, failure to deposit tax deducted at source and giving false evidence under the ambit of Prevention of Money Laundering Act or PMLA. Inclusion of these offences under PMLA will ensure faster rial. - www.economictimes.indiatimes.com

I-T DEPT SEARCHES PARSVNATH OFFICES ACROSS INDIA

The Income Tax (I-T) department today searched seven offices of Parsvnath Developers. The department also conducted survey in 22 premises of the company at various locations across the country. "We have done a routine tax enquiry based on some information we had and have seized some documents. There are 100 tax officials involved in this investigation, conducted at Delhi and other regional offices of Parsvnath Developers," said a source at the I-T Department. Industry sources said the search was conducted because there were complaints of account discrepancy, money laundering and tax evasion. "I can confirm that two offices of Parsvnath in Delhi have been sealed and there are simultaneous raids in the regional offices of the builder. I feel that there has been a lot of discrepancies in their accounts," said a real estate player familiar with the development. Business Standard tried to contact Parsvnath Developers, but failed to get any response. However, a person associated with the company confirmed the search operation. In a search conducted under Section 132 of the Income Tax Act, investigators can enter offices and residences anytime and seize documents. It is conducted under a director of investigation or commissioner of Income Tax. In a survey conducted under Section 133 of the Act, investigators enter premises in normal business hours and can‘t seize documents. Also they can‘t take any valuables with them unlike in search. This survey is conducted under a joint commissioner or a joint director. Recently, Parsvnath announced its financial results. Its fourth quarter revenue rose 1,398 per cent to Rs 360.95 crore, compared to Rs 24.09 crore in the year-ago period. According to its fourth-quarter results statement, the company‘s debt declined to Rs 1,417 crore from Rs 1,660 crore a year earlier. - www.business-standard.com

TAX-SAVING DEPOSIT SCHEME TO FUND LOANS TO STUDENTS, EDUCATIONAL INSTITUTIONS

The government is drawing up a tax-saving bank deposit scheme that will raise funds for cheap loans to educational institutions and students aspiring to become doctors, engineers, fashion designers and software engineers. The human resource development ministry discussed the proposal with the Planning Commission last week, and in the next one month, the concept will be crystallised, minister Kapil Sibal told ET. Investments in deposits under the proposed First Education Savings Scheme (FESS) will be eligible for tax exemption similar to the public provident fund or life insurance premium, said an official in the ministry who did not wish to be named. Savings under the scheme will be collected by commercial banks and transferred to the proposed National Education Finance Corporation (NEFC) for refinancing educational loans at concessional rates. Banks will transfer deposits under the scheme every month and get a commission for their services. Based on the Planning Commission‘s feedback, the ministry of human resource development will prepare a formal note and circulate it to various arms of the government including the finance ministry before it will be sent to the Cabinet for approval. FESS is just one of the instruments suggested by the HRD ministry to raise funds for the proposed corporation, said a Planning Commission official who did not wish to be named. "We agree with HRD ministry about the need to focus on secondary and higher education to strengthen our gains in primary education," he said. The total fund requirement for secondary and higher education is estimated at around Rs 10,94,000 crore by 2020. The ministry expects the corporation to meet a little more than one-fourth this requirement. NEFC will be set up with an initial equity capital of Rs 5,500 crore. The ministry proposes to infuse Rs 3,000-crore equity capital in the company every year with the aim of generating Rs 35,500 crore by 2020. Besides equity, NEFC will raise funds through public deposits, domestic borrowings, grants, donations and bonds and debentures. NEFC will refinance education loans at an interest rate as low as 4% to students aspiring for higher education. Interest rates for education loan currently vary between 10% and 12%. It will also refinance loans extended to educational institutions and universities at 2% below the prime lending rate. Mr Sibal had told Parliament on March 5 that his ministry is planning to set up NEFC to refinance loans besides funding educational infrastructure and expand institutions. - www.economictimes.indiatimes.com

MORE TAX RETURN FORMS NOTIFIED

Close on the heels of notifying Saral-II (for salaried taxpayers), the Finance Ministry has now come out with the format of income-tax return forms for other categories of assessees. These new income-tax return forms would be valid for financial year 2009-10 (assessment year 2010-11). The Central Board of Direct Taxes (CBDT) has come out with ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 and ITR-V (electronic return) for AY 2010-11. The income-tax return forms notified for AY 2010-11 are more or less similar to the income-tax return forms notified for AY 2009-10. "The income-tax return forms notified for AY 2010-11 are similar to the earlier income-tax return forms. They do not have any material change as compared to earlier income-tax return forms (for assessment year 2009-10)", Mr Prashant Khatore, Tax Partner, Ernst & Young, told Business Line here. - www.thehindubusinessline.com

IRDA SEEKS TO DEFINE LAPSATION, REVIVAL AND SURRENDER OF ULIPS

To make unit-linked insurance plans (Ulips) more transparent, the Insurance Regulatory and Development Authority (Irda) on Tuesday proposed to standardize definitions of lapsing, reviving and surrendering of these policies. The proposals, if implemented, will curb charges and terms levied on policyholders by life insurers if they default on premium payments. At present, there is no standard definition on Ulips‘ lapsing. Ulips-hybrid insurance products that provide life cover and invest part of the premium in stocks and bonds-account for up to 90% of the new business premium of many private sector life insurers. The insurance advisory committee of Irda has defined lapsing of a policy as when a policyholder discontinues premium payment anytime during the policy tenure due to any reason other than death of the policyholder. In the absence of a standard definition, many private insurers now either charge policyholders for revival or offer special rebates of free renewal of lapsed Ulips. Moreover, insurers are not mandated to disclose details of lapsation. Under the proposed norms, policyholders will be given five years to revive a lapsed policy. However, the insurer will have the right to decline revival of the policy. For every Ulip policy, the insured will be a given a grace period of 15 days for monthly premium payments, and 30 days in all other cases. If the policyholder does not pay the premium within this time, the policy will be termed as lapsed. However, a policyholder will still be entitled to revive the policy or continue with the policy only to the extent of risk cover. The customer can also choose to either continue with the policy with risk cover and as part of the fund, or to withdraw completely without any risk cover.The proposals come as Irda and the capital markets regulator, Securities and Exchange Board of India (Sebi), are caught in a legal battle over regulation of Ulips. While a Sebi committee has recommended tightening the net worth and disclosure norms for mutual funds, Irda has been making Ulip norms stricter over the past few months."In order to give better understanding of the terms and conditions of the linked products to the policyholders and to provide them an opportunity to make a more informed decision, it is felt that there should be uniformity in the approach on various key parameters of the unit-linked products," Irda said. Irda has sought comments on the draft regulations before 27 May. - www.livemint.com

TAXPAYERS DELAY GETTING THEIR I-T RECORDS FIXED

Driven by a rare sense of complacency, most Mumbaikars who received wrong recovery notices from the income tax (I-T ) department, have not yet chosen to set the record straight. Despite the fact that the I-T authorities have requested people to fill in rectification forms, many have neglected to do so, which means that the amount could resurface as outstanding dues in future. "We have identified and rectified the system error in our central office in New Delhi where the notices emanated,‘‘ said a senior official at the Bandra-Kurla office. "Yet, the three lakh assessees who have got letters will have to be sifted from several others who have been issued genuine recovery notices . Those who feel they have been wrongly charged under Section 234C or TDS, should approach us individually so we can make the change manually . They must bring their tax return acknowledgement and Form 16 for us to verify the facts,‘‘ the officer added. One lakh people have filled in a special rectification form that has been prepared by the department. Yet, this is but a third of the total number of taxpayers who have received such notices. Those who are lagging behind have chosen not to file for correction either in the belief that the system will make the necessary change automatically , or because the CAs who file their returns have not advised them to do so."An office colleague helps me and my co-workers with our returns. None of us has bothered to visit the I-T office and get them to amend the records,‘‘ said an employee of a south Mumbai firm. "Most people are quick to panic once they receive any notice from the I-T department,‘‘ an I-T officer said. "Yet, this time, they have not completed their due diligence as they know several others are affected, and they feel the system will handle it of its own accord. It is advisable that they approach us to set the records straight.‘‘ As of now, a slow trickle is visible at the two rectification counters that have been installed at the BKC centre . Six officers, most of them women, are processing each application manually, entering the recovery amount as ‘nil‘ after verifying the details on the I-T acknowledgement form as well as Form 16. This eliminates the error from the I-T records and the amount will not show up in the assessee‘s records later. - www.economictimes.indiatimes.com