Presumptive tax scheme to bring cheer to small businesses and professionals

The Budget presented on Monday has come under fire for the move to tax EPF but there's one proposal that is sure to bring cheer to small businesses and professionals, and that's the presumptive tax scheme.

This scheme covers small businesses with gross turnover up to Rs 2 crore — up from the existing ceiling of Rs 1 crore. It has also been extended to professionals with gross income up to Rs 50 lakh. So what exactly is presumptive taxation? As per Section 44AA of the Income-tax Act, 1961, a person engaged in business is required to maintain regular books of account. However, a person adopting the presumptive taxation scheme can declare income at a prescribed rate of 8% and, in turn, is relieved from the tedious job of maintaining books of account.

However, in case income earned is at a rate higher than 8%, then the higher rate can be declared.

And with the inclusion of professionals, a new Section 44ADA is proposed to be inserted in the Act to provide for estimating the income of an assessed who is engaged in any profession referred to in sub-section (1) of Section 44AA such as legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration or any other profession as is notified by the board in the official gazette and whose total gross receipts does not exceed Rs 50 lakh in the previous year. For the purpose, 50% of the total receipts of the professional during the financial year will be considered as profit and get taxed under the income-tax head "profits and gains of business or profession".

If you look at the table, it's clear that the assessee not only saves on record-keeping headaches, he also saves a considerable amount in taxes. Yes, there can be a few counters to this — mainly that the taxable income could be much below the presumptive taxation rate of 8% and 50% of receipts respectively. And if that is the case then the individual has no option but to maintain the books of accounts.

To further keep the compliance burden minimum, those using presumptive taxation scheme are also allowed to pay advance tax by March 15 of the financial year, as against the normal practice of paying the advance tax in four installments.

However, the taxpayer needs to be careful when opting for this as he or she has to remain in that scheme for 5 years to avail the benefits.

The writer is a certified financial planner

Source: Economic Times

A 25-year-old could lose 18% of retirement income

It's not about paying more in new taxes, which middle-class India has been doing year after year. You just have to count the number of new cesses introduced in the last decade to be sure of this. It's also not about giving up subsidies, which Indians have begun to do rather speedily—the latest example being the surrender of 7.5 million LPG connections in little over a year.

The rage over the new tax on withdrawal from employees' provident fund (EPF) is because the government is seen to be attempting to steal the hard-earned savings of salaried private sector employees. Unlike government employees, private sector workers do not have guaranteed pension or healthcare plan to take care of their sunset years.

Ever since news of the EPF tax broke, people have been worrying about how much of an impact it will have on their nest egg. TOI did the calculations and as the table above shows, if the government goes ahead with the tax on the interest accrued on PF contributions after April 2016, a person starting his career after this could lose 18% of his entire retirement savings at provident fund maturity. Even those in the middle of their career face the prospects of losing between Rs 10 lakh and Rs 20 lakh (12% to 8%) of their retirement corpus.

All this to nudge people towards the National Pension System (NPS) which has failed to get the number of subscribers it expected to because the scheme does not generate as high post-tax returns as the EPF does. By taxing 60% of the interest on EPF withdrawal—if it is not invested in annuity — the government is attempting to make it less attractive for people so that more investment flows into the NPS.

A better way to mend the EPF could have been to fix the dysfunctional employees' pension scheme (EPS), which is a part of EPF. Every EPF member mandatorily contributes towards EPS, but the scheme is designed so badly that the monthly pension cannot exceed Rs 4,000 — an amount that won't equal even 1% of the lastdrawn total monthly salary in many cases.

Times View

The proposal to tax part of the corpus of provident funds on withdrawal needs to be rolled back completely. The salaried middle class has consistently borne the brunt of direct taxation in India and it is unfortunate that instead of making a serious and concerted effort to widen the net, successive governments have opted to squeeze honest taxpayers at every available opportunity.

The latest proposal amounts to double taxation, since the employee's PF contribution is in any case not tax exempt beyond the 80C ceiling of Rs 1.5 lakh per annum.

Thus, those with just decent salaries — often in the last few years of their working lives — would end up having their contribution taxed in the fi rst instance and then 60% of it taxed again at the stage of withdrawal. As for those starting their careers now, quick calculations show they could stand to lose nearly a fi fth of their retirement savings to tax. This is grossly unfair.

The government's argument that the move is aimed at encouraging people to plan for pension for their old age ignores the fact that EPF already has a pension component — in the form of the employees' pension scheme — whose fl awed design has resulted in low payout. Instead of forcing people to move to the national pension system, it should revamp the EPS.

This would ensure competition between EPS and NPS and investors would have the option to choose. If the idea is to promote competition and free market across the economy, why go back to the regulated regime of old? The government shouldn't let ego stand in the way of acknowledging the inherent unfairness of what it's seeking to do.

In any democracy, Budget proposals are not cast in stone and should become law only after debate and discussion. The government should pay heed to the spontaneous sense of outrage this proposal has evoked and let it go. It'll only gain goodwill by doing so.

Source: Economic Times

Government fixes loophole to make non-compete fee taxable for professionals

MUMBAI: Professionals obtaining any sum of money under a non-compete agreement will now be subject to tax with the government having plugged a loophole in the Budget.

Once non-compete agreements were largely restricted to the manufacturing arena.For instance, an outgoing employee would have to sign on the dotted line that he would not share knowhow or a patent that he had helped develop during his employment. Or if he was an inventor, he could be debarred under the non-compete agreement from starting a similar line of business for a certain period. The money received under such non-compete agreements was duly taxed.

"There was no specific provisions to cover professionals who could argue that the sum of money received by him under a non-compete agreement was not taxable," says Gautam Nayak, tax part ner, CNK & Associates.

Now a wide gamut of pro essionals -such as those in he legal, medical, enginee ring or architectural profes sion, or engaged in accoun ancy , consultancy and inte rior decoration, to name a few -have no escape from paying their tax dues when they receive money under a non-compete agreement.

The nature of the tax will be based on the nuances of the agreement. The money received could be taxed either as a capital gain or as income from business or profession. Nayak illustrates: "If a managing partner in a consultancy transfers the right to carry on the firm in its existing name, the sum of money received by him would be a capital gain, subject to a lower rate of tax, assuming the managing partner falls in a higher tax bracket. But if the managing partner decides not to set up a competing consultancy business for a certain period of time, say three years, then the sum of money received under the non-compete agreement will be treated as income from business or profession and taxed at the applicab le income tax rates."

One of the most significant developments in the transfer pricing arena contained in the Finance Bill, 2016 is the introduction of Country-by-Country Reporting (CBCR) norms for the purpose of transfer pricing documentation.

"The new requirement comes into being from April 1, 2016 (financial year 2016-17) for Indian parent companies having consolidated turnover in excess of 750 million euros (or Rs 5,395 crore at current exchange rate). India's transfer pricing authorities will also be able to access CBCR documentation of parent companies, outside India, which have subsidiaries in India, via the mutual exchange of information agreements," explains Sanjay Tolia, partner, PwC.

Typically , the CBCR do cumentation requires reporting various details for each country where business operations are carried out by a company , such as amount of revenues, profit before tax, income paid and accrued, number of employees, assets, and details of activities carried out in each country . CBCR documentation will give Indian tax authorities a global picture of the operations of an Indian-headquartered company and of multinational companies having business in India, and deter mine whether appropriate profits are apportioned to the business operations carried out in India.

Indian-headquartered companies having interna tional operations will need to file CBCR documentation reports for the FY2016-17, before the due date of filing of the tax return, which is November 30, 2017. A graded stiff penalty structure has been prescribed for various noncompliances (see table).

"While CBCR is expected to bring in increased transparency , it is likely to increase compliance burden significantly. Transfer pricing authorities would want to have updated information at least on a yearly basis," says Hitesh Gajaria, chartered accountant and transfer pricing specialist.

"An Indian company , whose parent is resident of a country which is perceived as not co-operating with India for exchange of information, say Cyprus, will find it tougher. The Indian company may not have all the relevant information pertaining to its foreign parent and non-filing of the CBCR will result in a daily penalty ," adds Gajaria.

Source: Economic Times

We expect dialogues with government to improve investment climate

In a chat with ET Now, Mayank Ashar, MD & CEO, Cairn India, says when the burden goes from fair to an extremely high load, at that point we go away from win-win to a win-lose situation

ET Now: This budget has been pretty negative for oil explorers. Ad valorem duty has not been as per estimates. What is your reaction on this?

Mayank Ashar: First my reaction on the budget and then on the energy sector. We understand that the finance minister had to look at all stakeholders across the country and times are very challenging. So they had to find a variety of initiatives and stitch them together to a coherent whole with reforms in the agricultural sector, road sector, skill development, infrastructure and energy sectors. So we were hoping for some improvements and clearly we want to acknowledge that reforms have taken place. If I look at the new regime on the gas pricing for deep offshore field to get full import parity, that is very significant. It is something that the industry has been asking for a long time. So getting full recognition and implementation of that is very noteworthy and the backdrop to the budget is that the ministry has been doing some reforms on its own. I was at Houston last week where the Indian marginal fields were announced. So I see this as not a one shot deal but a continuum of openness of energy sector for investment in this country. We import three quarters of our oil consumption, so it is important that we get the indigenous production right. We were hopeful that the cess levy would get significantly altered in this budget. We noted that it did get altered to ad valorem but the percentage of ad valorem is actually a lot higher than we were expecting. But we accept this as a first step and we hope that not just Cairn but other producers as well will continue to have dialogues with the ministry and the government for a continued improvement in investment climate.

ET Now: So how much pressure are you witnessing on your realisations now that the cess also has not been as per estimates and crude prices continue to fall?

Mayank Ashar: The energy industry is facing a perfect storm. It does not matter whether you are an OPEC country or a shale oil producer in United States or oil and gas producer anywhere else in the world. We are facing very significant pressure of the like we have not seen in many decades. As far as Cairn is concerned, we are proud of our Rajasthan fields. We have some of the lowest cost oil in the world but despite that what we find is that at these levels of prices with the current burden that we have, our proftabilities under significant stress and if you were to look at our earnings after depreciation, they are virtually negligible. So this results in us looking hard at shutting down some unprofitable production. So we were really counting on the cess burden to be significantly lower. It has not happened yet but we hope that we can continue to have dialogue with the government and find a way so that the burden on the industry is not so severe that it hurts investment.

ET Now: So what is the option available? ONGC expects some negotiations to continue with the government. You too will reach out?

Mayank Ashar: Yes, I think we acknowledge the government efforts here. They clearly recognise that it was an issue and we would suggest that their response is less than what it ought to be but we appreciate the first steps. So I am not surprised at all that ONGC is feeling the pain. We are feeling the pain and together the two of us pay a lot in cess. So that is not surprising. I do want to separate a burden from, for lack of better word, an allowance of sorts. So sometimes there are incentives given to industries to invest or to grow and then there are burdens. These burdens are fair because at the end of the day, the oil and gas is owned by the government, by the people and so it is appropriate that the industry pays a burden. But when that burden goes from fair to an extremely high load, at that point we go away from win-win to a win-lose and we would suggest that in any industry not just oil and gas when the burdens are too high, where the government take is too high, it has collateral impact.

Source: Economic Times

Budget 2016 is growth-oriented

In a chat with ET Now, Adi Godrej, Chairman, Godrej Group, says the budget has done in a fair amount for demand picking up and of course GST would do a lot. So when demand picks up, private sector investments will pick up. Edited excerpts

ET Now: What do you think of the Budget?

Adi Godrej: Clearly this budget is growth oriented, it is development-oriented especially in the agri and rural sectors which have suffered recently. What would be absolutely great is if in this budget session they could pass the GST constitutional amendment bill because the combination of a good budget and the GST could be very growth oriented.

ET Now: When do you think that the capex cycle for corporates will pick up? Right now, the economy is just moving on two cylinders of public spending and private consumption.

Adi Godrej: Private capex will pick up when demand picks up. I think this budget has done in a fair amount for demand picking up and of course GST would do a lot. So when demand picks up, private sector investments will pick up tremendously.

Source: Economic Times

Hero Motor back in demand on Budget’s rural thrust

ET Intelligence Group: The stock of world's largest motorcycle manufacturer Hero MotoCorp is once again on investors' radar, thanks to the government's impetus to stimulate the rural sector, a key market for the company. It is also gaining a foothold in scooter segment — the fastest-growing twowheelers segment.

Hero Moto's stock has outperformed the BSE Auto index by 14% since January after being an underperformer in the past two years.

It is among the few stocks in the Nifty, which have not broken their low of August 2013. This is the prime reason why traders have been accumulating the stock over the past three months.

The stock is trading at 22% premium to the BSE Auto index based on projected FY17 earnings growth compared with 37.4% average premium in the past five years, according to Bloomberg data.

Based on the early commentary of weather forecasters, traders are betting on a good monsoon this year after two consecutive years of drought.

Historical data shows that monsoon has never been in deficit for three straight years. If monsoon turns out to be normal, it will augur well for Hero Moto's volume growth as half of it is derived from the rural area. Another positive factor is the government's intent to double the rural income in five years.

Higher allocation to rural employment guarantee scheme — MGNREGA, increased agriculture credit, and better pricing for agricultural products through minimum support prices are expected to lift the agriculture contribution to the GDP.

The company's motorcycle volume grew 6.1% in 2014 and fell 3.1% in 2015. If rural consumption improves this year, volume may grow significantly. According to Bloomberg, consensus earnings per share are expected to be Rs 172 and Rs 192 for FY17 and FY18, respectively implying growth of 11% each year.

The company reported 22% earnings growth in the nine months to December 2015 despite 3% decline in the volumes. This shows that it has multiple levers to drive profitability. Gross margins improved — for the sixth quarter in a row — to 33.1% in the December quarter.

Hero is also gaining foothold in the scooter market by introducing new models such Maestro Edge and Duet.

Source: Economic Times

Expected more funds to boost govt banks

Union Finance Minister Arun Jaitley's focus on the nine key pillars in Budget 2016-17 should revitalise the economy, strengthen the pace of reforms and set the country on a growth trajectory. The budget is timely and critical at a time when the global economy is in crisis. I think, the Finance Minister has done a fine balancing act by harmonising the need for higher capital expenditure on one hand and higher revenue spending on the other — even as he has stuck to the fiscal target of 3.5%.

The emphasis on agriculture, farm welfare and rural sector, as evident from the increase in allocations to both capital creation and welfare schemes, is welcome.

The allocation of Rs 17,000 crore to irrigation and the fast-tracking of rural development projects will reduce dependence on monsoon in the long term. Besides, the allocation of Rs 38,500 crore for NREGA will reduce short-term rural distress in light of deficient rainfall and drought situation in the last two years. The move towards the smooth resolution of disputes and contract renegotiations for Public-Private Partnership (PPP) projects indicates that the PPP regulatory regime in India is maturing.

One was expecting a greater allocation for recapitalisation of public sector banks. Overall, Budget 2016-17 balances long-term vision and short-term stimulus measures, which the Indian economy so desperately needs in the current global environment.

Source: Economic Times

How to make a Bharat-focused portfolio after Budget 2016

NEW DELHI: One sure-shot way of making money whenever there is a change in government spending is by realigning your portfolio in favour of that theme, say experts.

The recent budget presented by Finance Minister Arun Jaitley had 'Bharat' written all over it. In other words, the budget was focused on rural and infrastructure spending. Instead of focusing more on capital expenditure, which was the focus in the 2015-16 Budget, this one appeared to prioritise rural sector.

Experts say investors should tweak portfolios towards the 'Bharat' theme or slightly increase exposure to stocks that cater to that theme. Going through the Budget fine print, the rural sector is the one that benefited most among all sectors, with a total budget allocation of Rs 87,765 crore.

"The growth potential in the rural segment is high. Investors should focus on stocks in sectors that are relatively more levered to rural markets, which will definitely show better signs of earnings growth going forward," Taher Badshah, Senior Vice President & Co-Head Equities, Motilal Oswal Asset Management, said in an interview with ET Now.

"Investors can look for select stocks in the FMCG space and NBFCs that actually cater to low-income housing. There are micro-lending companies which also cater to that segment of the market," he said.

The Finance Minister in his budget stuck to the path of fiscal prudence and maintained its fiscal deficit target at 3.9% for FY16 and 3.5% for FY17.

Going forward, the government is likely to focus on ensuring macro-economic stability, with a thrust on improving infrastructure and at the same times maintaining fiscal prudence.

The government in the Budget outlined a roadmap that would focus more on key areas like farm sector, rural development, infrastructure and employment generation, which would boost consumption.

"As far as rural discretionary consumption is concerned, the budget is a welcome change. The government has rightly recognised that after two years of weak monsoons the whole segment is under stress and they have done what they could to improve conditions out there," said BharatIyer, JP Morgan India in an interview with ET Now.

"I would not get carried away because let us face it at the end of the day the allocations have increased by about 8% to 10% but it is not more than that. And secondly, we still have to watch out for a couple of more variables such as monsoon, minimum support prices for Agri commodities etc," he added.

But, there is no doubt that the Budget did a good job in balancing many economic, social and political priorities that the FM had to juggle in these trying times, say experts.

Ahead of the Budget, the market was little nervous about higher capital gains taxes, which did not materialize. Both Sensex and Nifty50 fell by over 10% ahead of the event.

A lack of major negatives and credible numbers has led to massive short-covering and long positions being built in the equity markets, say experts who advise investors to tweak their portfolio towards sectors like cyclical, HFCs, two-wheeler makers, cement, FMCG etc.

"There's a significant increase in outlay for the rural sector. Combined with the implementation of the 7th Pay Commission recommendations and OROP, it means a good impact on consumption," said Mihir Vora- Director and Chief Investment Officer, Max Life Insurance.

"Sectors like cars, two-wheelers, other consumer durables, cement, FMCG, housing finance, microfinance and other NBFCs etc. could see better demand. The Budget is also overall positive for housing and real estate - there's increase in the tax incentives for affordable housing and simplifying the tax structure for REITs," he added.

Top five stocks to play the Bharat theme:

Analyst: Anand Tandon, Independent Analyst

M&M Financial: Iyer, who runs M&M Financial, is a fantastic manager. "Among many people I have met in the financial services business I would argue that his grasp on his business is among the best," said the analyst. You require a certain calibre of person to be running a bank who has to be able to make NPAs and so on.

That said, the company suffers unnecessarily because of the fact that they actually genuinely show their NPAs when they come out with one. Tandon is of the view that if you are really making a case for an uptick in terms of the rural economy then, without a doubt, this would be a company which will benefit hugely and will also have the largest beta in terms of recoveries in terms of their portfolio.

Mahindra Financial is going to be a bellwether stock in the rural economy.

Analyst: Sudip Bandyopadhyay, Market Expert

Jain Irrigation: This is one company which has got a great potential, especially after Budget. There were certain setbacks for the company in the past but I think the company has corrected the course quite a bit and remained focussed on the core business which is small and medium irrigation equipment and projects, said the analyst.

"With the budget brining back focus to rural economy and irrigation, I think this is one company which is going to benefit. Their valuation still continues to remain attractive so, with a one-year time the horizon, it is a great buy," he added.

Coromandel International:

Coromandel International is an excellent company, great management. "Unfortunately, the market was not conducive but with again focus coming back to rural India, I think this company has a great future," said the analyst.

"Also, remember that fertiliser subsidy rationalisation is on cards and there has been enough and more precursor to that. We are expecting current valuation if an investor buys, it is one-year time horizon, it should give excellent returns," he said.

Analyst: Daljeet Singh Kohli, HoR, IndiaNivesh

Hero MotoCorp:

Kohli said his team will be revising the rating on Hero MotoCorp to buy from hold rating and increase the target price from Rs 2600 to around Rs 3000 odd, said the analyst. The basic logic behind the move is that the kind of push that has been given on the rural side in the budget is going to yield results over a period of one to two years.

That is a long-term sustainable positive for Hero MotoCorp because that is where their major market lies. "Also, if we see in terms of valuation, the stock is still trading only at 16 times of FY 17," he said. This PE multiple actually had contracted from 18x to 16x because in him last two-three months, they did not show that kind of numbers but the numbers which have come for February were also good.

Most of the things are positive for Hero Motocorp and in comparison to Bajaj Auto, it is still better because Bajaj Auto is still facing headwinds in export.

Analyst: D K Aggarwal, Chairman and MD, SMC Investments and Advisors

Bharat Electronics:

The government's greater emphasis on 'Make in India' initiative in Defense sector provides a great opportunity for the Company to enhance its indigenization efforts and to address the opportunities in Indian defence sector.

Healthy order book and orders in the pipeline, capacity enhancements and the creation of new test facilities help the company in achieving the targeted growth and also would continue to drive the growth in the coming 4 to 5 years.

Source: Economic Times

Budget has offered room for monetary policy easing

NEW DELHI: The Budget that aims to limit fiscal deficit to 3.5 per cent of GDP in 2016-17 has been able to provide room for easing of the key policy rate by the Reserve Bank, Minister of State for Finance Jayant Sinha today said.

"Macroeconomic stability is fundamental to ensuring that monetary policy has space. If we don't provide that monetary policy space by generally a tighter fiscal policy, we cannot expect monetary policy to loosen up," he said while speaking at an event of the Indian Private Equity and Venture Capital Association (IVCA) here.

"So, that is the kind of environment we have tried to create on the macro side (in the Budget)."

There is widespread speculation that RBI is going to cut policy rate soon as the government has walked a tightrope on the fiscal deficit.

Amid debate over balancing growth and financial management, Finance Minister Arun Jaitley adhered to the fiscal consolidation road map by proposing to keep the deficit at 3.5 per cent of GDP in 2016-17.

The fiscal deficit in the current fiscal has been estimated at 3.9 per cent, which will be brought down to 3.5 per cent in the next fiscal as per the Budget 2016-17.

Citing the example of the previous NDA rule, he said this is what had happened in 1999-2001.

"There was fiscal consolidation, the current account deficit came down, inflation came down. As that happened, interest rate, which was very high over 10-12 per cent, came down quite dramatically," he said.

With regard to the proposed goods and services tax (GST), Sinha said it is stuck in the Upper House but may get passed.

"GST is stuck in the Rajya Sabha, but we are very hopeful that the bankruptcy law will be passed. Even for GST, the numbers (in the Rajya Sabha) are going to change... so, we are hopeful of GST as well," he said.

On banking sector reforms, Sinha said the government has announced its intent for consolidation in the sector in the Budget.

"As far as IDBI Bank is concerned, we are going to transform it. We can potentially drop below 50 per cent as part of strategic disinvestment. We have made a very strong statement around that. We have consolidation process of public sector banks (that has) started," he said.

The government currently holds 80.16 per cent in IDBI Bank.

"All of us as citizens of India own 27 public sector banks. Once the consolidation process starts, I do not think we will have 27 public sector banks (going forward)," he said.

Source: Economic Times

FM's plan focused on taxation of retiral schemes

By Parizad Sirwalla

The much awaited and the much talked about Budget 2016 has been revealed by the Finance Minister (FM), Mr. Arun Jaitley. This Budget talks about an India being transformed, and in order to do so, the FM has introduced us to the measures which would be undertaken based on the proposed nine pillars for India. The pillars which he set across includes agriculture, rural sector, social sector, education, skills and job creation, infrastructure investment, financial sector reforms, governance reforms and ease of doing business, fiscal discipline and tax reforms to reduce compliance burden.

The key provisions in direct taxes which have been proposed in this Budget, particularly for the individuals have been listed hereunder:

Tax slabs and 80C limits :The common man had been quite hopeful on the basic rates of taxation to undergo a change along with the 80C deductions limits to be raised but these have remain unchanged. However, for small taxpayers earning annual income not exceeding INR 5 lakhs, the FM has raised the ceiling of tax rebate from INR 2,000 per annum to INR 5,000 per annum. This has resulted in tax savings up to INR 3,090 per annum.

Additionally Taxing the Super Rich: For the super-rich the basic tax rates haven't changed but the rate of surcharge for the super-rich class of individuals (i.e. total income is exceeding INR 1 crore) has been increased from 12 per cent to 15 per cent (which was increased by 2 per cent last year as well). The maximum marginal rate of tax (i.e. for income in excess of INR 1.065 crore) will now stand at 35.535 per cent compared to the erstwhile rate of 34.608 per cent.

Additional interest deduction: As anticipated, in order to boost the real estate sector and in-line with the Government's long term intention to provide housing for all, an additional deduction of up to INR 50,000 per annum for interest on housing loan provided the loan amount does not exceed INR 35 lakhs (sanctioned during FY 2016-17) and the cost of the house does not exceed INR 50 lakhs. Also, the individual should not own any other property on the date of sanction of the loan.

Increase in time period for acquisition or construction of self-occupied house property for claiming deduction of interest - Delays in housing construction projects that adversely impacted the tax deduction claim made by house owners now sought to be relaxed. Enhanced deduction for interest paid on housing loan now proposed to be allowed even if construction is completed after 3 years but before 5 years.

Deduction in respect of rent paid: In case of individuals who does not own a house and is not in receipt of House Rent Allowance from employer, a deduction of up to INR 2,000 per month was allowed in respect of rent paid towards accommodation occupied by them. This limit has been raised to INR 5,000 per month.

High earners of Dividend will now be taxed: Currently, income earned by way of dividends from shares of domestic companies is exempt from tax and dividends are taxed only at the rate of fifteen per cent at the time of distribution of dividend in the hands of company declaring dividends. It is proposed that income earned by way of dividends from shares of domestic companies in excess of

Rs 10 lakhs shall be taxable in the hands of resident individuals, HUFs or a Firm at the rate of 10 percent (plus applicable surcharge and cess).

Employer's contribution to Super-annuation fund: Currently, the amount of any contribution made to an approved Superannuation Fund by the employer in respect of the employee, to the extent it exceeds INR 1 Lakh is taxable as perquisite in the hands of the employee. FM has proposed to enhance this threshold to INR 1.5 Lakhs. Further, the payment from a superannuation fund in lieu of or in commutation of annuity purchased exempt only to the extent of 40% in respect of contributions made on or after 1 April 2016.

Employer's contribution to and withdrawal from a Recognized Provident Fund - The employer's contribution to a recognized Provident fund in excess of INR 150,000 per annum may now be taxable in the hands of the employee. Further, tax exemption on withdrawal of provident fund may now be limited to 40 percent of accumulated balance attributable to contributions made on or after 1 April 2016 by an employee. Salary limits will be separately prescribed for employees excluded from tax on such withdrawal. However, it is likely that the Finance Ministry will issue detailed FAQs on this subject.

Belated Tax Return - The time limit to file a belated individual tax return has been reduced to one year from the end of the relevant financial year. Further, a belated tax return which was not allowed to be revised earlier can now be revised within the prescribed time limits.

For the Aam Aadmi, this Budget was focused on taxation of retiral schemes, reducing compliance burden and litigation and minimizing administrative and procedural difficulties faced by taxpayers.

(The writer is Partner and Head of Global Mobility Services - Tax, KPMG in India)

Source: Economic Times

Too many regulations the biggest roadblock in India

The most significant part of the government's latest Budget is pegging the 2016-17 fiscal deficit at 3.5% of GDP, says Godrej group Chairman Adi Godrej. He says the Budget wasn't a surprise to him and that he expects the proposals to revive rural demand. But, there are still roadblocks like too much regulations, which cause delays, he tells ET. Edited excerpts:

Was the Budget a surprise to you?

It was not a surprise. Achieving a fiscal deficit of 3.5% was a god move in the Budget. I feel many measures on Bharat will revive slowing demand from rural areas.

But there are concerns about single-digit growth of consumer products makers?

It is very rare for the monsoon to be erratic consecutively for three years. Faster execution of initiatives mentioned in the Budget, good monsoon, plus GST will help FMCG companies achieve double digit (growth).

What is your opinion on 100% FDI in food marketing?

It is a very good step. In my opinion, why have restrictions on FDI at all? Competition improves when there are no restrictions and 100% FDI is a good thing to aspire for.

Will you be looking at exploring new sectors?

We don't wish to get into new sectors as of now. We are doing well in the various sectors that we are currently in and there is so much scope and opportunity.

Will the group be looking at acquisitions?

Acquisitions are a part of our company's strategy to expand into emerging markets, the most recent being Canon Chemicals in Kenya. Our focus is on home care, personal care and hair care, and we are definitely planning more acquisitions. Roughly, half of our revenue comes from our international businesses where the higher per capita sales come from Indonesia, Chile, Uruguay, Kenya, the UK, etc.

One of the proposals of the budget is to bring in a regulator for real estate. What is your take on this?

Independent regulators do well, but whenever the government enters regulations, things tend to get out of hands. There are areas that government needs to stay out.

What are the roadblocks India faces today?

The biggest roadblock in India is that there are too many regulations. So many permissions need to be taken. There again the process is extremely slow, which causes so many delays.

Source: Economic Times

Budget ups tax compliance burden: Advance tax due 3 months earlier now

By Pragati Kapoor & Suraj Goel

Budget 2016 has significantly increased the income tax compliance burden on individual tax payers by making advance tax payable from June 15 instead of September 15 earlier. Now, individuals (except for exempted categories) will have to estimate their income for the full financial year as early as June 15, compute the income tax payable on that income and pay 15 per cent of that or else get ready to shell out interest on late payment at a stiff rate of 1 per cent simple interest per month.

The current advance tax payment schedule for a company is 15 per cent, 45 per cent, 75 per cent and 100 per cent (cumulative) of income tax payable on the full financial year's income to be paid by 15th June, 15th September, 15th December and 15th March, respectively. Till now, individuals liable to pay advance tax, had to pay 30 per cent, 60 per cent and 100 per cent (cumulatively) of tax payable on the full fiscal's income by 15 September, 15 December and 15 March, respectively. An individual with a tax liability of Rs 10,000 or more in a financial year has to pay advance tax in that year as per current income tax law. The budget proposes to do away with the separate advance tax payment schedule for individuals and instead, impose the same schedule as that for companies on the individuals as well.

Making advance tax payable by June 15 instead of Sept 15 earlier will hike compliance burden on individuals. Agree?

— ET Wealth (@ET_Wealth) March 10, 2016

"Aligning advance tax schedule for individual tax payers is an accelerated revenue collection measure and will be an administrative burden for tax payers. There will be another compliance date to remember and missing it will mean having to pay interest. So instead of 3 there will be 4 advance tax instalments with the first date being June 15 followed by September 15, December 15 and March 15 as dates by which advance tax should be paid", says Sonu Iyer, Partner & National Leader - People Advisory Services, EY.

Impact of proposed change
For taxpayers who calculate and pay advance tax based on estimated income, the adverse impact of this proposal would increase with increase in variation (quantum as well as degree) of actual income from estimated and vice versa. For tax payers, who are unable to take out time from their busy schedules (a substantial number fall in this category) to calculate and pay advance tax, the adverse impact would be in the form of a significant increase in interest payable on the deferment of advance tax payment.

In practice, even now a majority find it very tedious to calculate and pay advance tax and therefore a large number skip the first or the first two advance tax payment dates and pay only by the third. Therefore, advancing the payment schedule by one quarter will increase compliance burden for them.

"The general feeling is that it (the budget proposal) has increased the tax compliance burden for the smaller tax payers'', says Mr Sanjay Sood, a Delhi-based practising chartered accountant.

"The change in advance tax payment schedule for individuals as proposed in Budget 2016 will increase the compliance burden for them. Practically most people do not pay the first few instalments because they find it difficult to estimate their income for the full year which means that the interest payment on deferment of advance tax will increase for them. Individuals may also have to bear the unnecessary burden of additional professional fee if he has engaged a professional (chartered accountant) and he increases the fee due to extra compliance, " adds practising chartered accountant R K Malhotra of Rajinder Kumar Malhotra & Co.

There is a small concession though: As per the proposed amendment, even if an individual pays 12 per cent and 36 per cent of the total tax payable for the full fiscal by June 15 and Sept 15, instead of the full 15 per cent and 45 per cent, then he would not be liable to pay interest of 1 per cent on the shortfall in advance tax. However, the real problem in case of advance tax is the fact that a substantial number of people are simply unable to find the time to properly estimate their income for the full financial year multiple times.

Advance tax calculation
The advance tax required to be paid by a particular date is a percentage of the total tax that is expected to be payable for the full financial year. Therefore, in order to pay advance tax by a given date, an individual tax payer will have to: (1) Accurately estimate his expected income for the full year; (2) Calculate the tax that would be payable on this estimated income; (3) Then pay advance tax so that the specified percentage of the total tax payable is paid by the dates stipulated.

If the stipulated amount, say 15 per cent, is not paid by June 15, then the tax payer will have to pay a simple interest @ 1 per cent of shortfall in actual advance tax payable per month for every month that the advance tax has been delayed under Section 234C of the Income Tax Act.

Refer illustration below for how the change in advance tax payment schedule may impact a tax-payer.

Problems faced
Individuals, normally, do not have the kind of account keeping and computation resources that companies do. Therefore, this kind of calculation four times in a year is quite a bit of work. Whether an individual does this computation himself or takes the help of a chartered accountant/financial expert, the compliance cost in terms of time and money increases with the number of times it has to be done. In fact, most people prefer to pay the interest on late payment and pay the total amount in March in one go rather than pay advance tax instalments as prescribed.

The problem does not end here. If advance tax payer's estimate of income for the full year goes drastically wrong (i.e. actual income is much less than estimated), then he may end up having paid more tax than necessary and will have to claim a refund. He would have also suffered the notional loss of interest he would have earned on the excess advance tax paid. If he does not pay advance tax or pays less than the requisite amount, then he has to pay heavy interest for paying late. Either way, it is a tightrope walk which has been made even more difficult by Budget 2016.

Actual income may vary sharply from estimated income due to several reasons: (a) A person may lose his job after the third instalment is paid which would entail loss of salary for three months; (b) A person may not get any of the bonus normally paid along with salary at the end of the financial year which he may have included in estimated income; (c) Interest income may vary as interest rates would change whenever fixed deposits are renewed/ investment allocation is reworked; (d) Rental income may stop mid-way through the year if the tenant suddenly vacates and the property given on rent remains vacant due to some problem or the other e.g. renovation/ pipe leakage etc.

Alternatively, a person may find a much higher paying job mid-way through the year and also get a hefty bonus at the year-end thereby pushing the actual salary way above the original estimate. Although capital gains are not subject to advance tax, the other income of an individual can still vary a lot. Therefore, the task of accurate advance tax calculation becomes tedious and difficult for the common tax payer.

While salaried individuals can inform their employers about their 'other income' and get the advance tax paid via TDS, they will still have to compute the estimated income prior to the four advance tax instalment dates.

Advance tax is payable as per the new schedule by all individuals except certain exempted categories. These exempted categories are: Senior citizens who do not have income from business or profession; If an individual is eligible for and opts for presumptive taxation scheme, then he would be liable to pay tax as per that scheme and the four proposed advance tax payment dates would not apply to him/her.

The table below illustrates how the amendment proposed in Budget 2016 will impact the interest burden of an individual tax-payer.

We have assumed a tax-payer's estimated income on the first three advance tax payment dates and the actual income on the last advance tax payment date in FY 2016-17. We have calculated advance tax payable on each of the first three due dates (as per the new proposed schedule) using these estimated income levels and after that, have included the impact on the tax-payer's interest burden due to the proposed amendment of u/s 211 and Section 234C of the Income Tax Act, 1961 made under the Finance Bill, 2016. * This being the actual income of the F.Y.

Advance tax and interest payable in Rs: (where actual income turns out to be higher than estimated income)

As per existing tax laws

Due Dates	Estimated Income level for whole year	Advance tax paid on estimated income	Advance tax payable on actual income	Shortfall in advance tax payment	Interest u/s 234C
By 15th June	1200000	0	0	0	0
By 15th Sept	1500000	84975	131325	46350	1400
By 15th Dec	1700000	207030	262650	55620	1700
By 15th Mar	*2000000	437750	437750	0	0
TOTAL					3100

As per newly proposed amendment

Due Dates	Estimated Income level for whole year	Advance tax paid on estimated income	Advance tax payable on actual income	Shortfall in advance tax payment	Interest u/s 234C
By 15th June	1200000	28580	65660	37080	1100
By 15th Sept	1500000	127460	196990	69530	2100
By 15th Dec	1700000	258790	328310	69520	2100
By 15th Mar	2000000	437750	437750	0	0
TOTAL					5300

The newly proposed amendment has increased the interest payable from Rs 3,100 to Rs 5,300 which means an increase of around 71 per cent in the interest burden for the tax-payer assuming his estimated income varies from actual as per illustration. The actual impact on interest payable by any individual will depend on how much his actual income varies from his estimates.

Thus, whether an individual tax payer complies with the proposed new schedule of advance tax payment or does not, either way the cost in terms of time or money is set to increase.

Source: Economic Times

The key Budget 2016 proposal that you probably missed

The analysis of Arun Jaitley's Budget has focused on issues like the fiscal deficit, boost to infrastructure, and sundry tax measures.Yet in terms of life and death, by far his most important proposal is the scheme to provide LPG (cooking gas) to the poorest 50 million households over the next few years. This finally shows sensitivity to one of India's greatest health hazards that has long been ignored.

The chatterati are much agitated by outdoor pollution affecting all our cities. Yet indoor pollution has always been a far greater health hazard, killing and maiming millions.

"Indoor pollution? What's that?" many people ask me. The answer: smoke from cooking chullahs made of clay or stones, fuelled by firewood or dung, used by 700 million Indians. Professor Kirk Smith of UCLA, the world's top authority , estimates that smoke from an Indian cooking fire is the equivalent of smoking 400 cigarettes per hour (note: per hour, not per day).The WHO estimates that this kills 1.2 million Indians per year.

Chullahs also produce carbon monoxide, but rarely in lethal doses. The most deadly is PM 2.5, particles under 2.5 microns that lodge in the lungs and cause cancer and TB. Smith says women cooking with biomass daily inhale more than 10 times the WHO norm for PM 2.5.

The chatterati are obsessed with outdoor pollution, which can kill them. But indoor pollution does not threaten elite households using clean cooking fuels like cooking gas or electricity. It threatens only poor folk using biomass. And so the elite couldn't care less.

Respiratory diseases are the second biggest killers after unclean water. TB is especially vicious, since it spreads fast.A National Family Health Survey (NFHS) study suggests TB incidence of 1,046 cases lakh population for unclean-fuel users versus just 296lakh for clean-fuel users. One study suggests that 51% of all TB cases in India (and 59% in rural India) are caused by cooking smoke.

Biomass smoke makes people blind. One NFHS study of women showed that blindness was 8,967 per lakh population in biomass homes compared with 6,152lakh in cleaner-fuel homes. Up to 17% of partial blindness and 20% of complete blindness in rural homes could be attributed to cooking smoke.

In recent decades, many attempts have been made to improve the traditional chullah. Modern chullahs have been designed to improve fuel efficiency and reduce smoke. This could in theory reduce the rural female workload of collecting firewood, reduce deforestation, and improve health. Many states installed millions of modern chullahs in villages. Yet every follow-up survey showed that most modern chullahs lay unused or broken.

There are many reasons. One study back in the 1980s cited a villager who abandoned modern chullahs saying that an open fire not only provided cooking heat but also lit up the house almost all villages lacked electricity). Modern chullahs cut out the light and plunged homes into darkness. Another villager said smoke from an open fire was a useful insect-controller that drove away insects living in thatched roofs.

Whatever the many reasons, the modern chullah programme simply failed. Women continued to use biomass in traditional chulhas, with no realization that they were slowly killing and maiming their families.

Switching to cooking gas will be very expensive. But it will do wonders for rural health. Jaitley said in his Budget speech that the government aimed to provide concessional connections to no less than 50 million families in coming years, covering the poorest quarter of the population. However, his Budget provided a pittance: just Rs 2,000 crore to meet the initial cost of subsidizing 15 million LPG connections to households below the poverty line. The scheme will continue two more years to cover 50 million families.

Oil minister Dharmendra Pradhan says the connection subsidy will be Rs 1,600 per family . The normal cost is Rs 3,400 per connection. Gas is an excellent clean fuel but is unaffordable for the rural poor. Poor families using free firewood and cow dung as fuel today will shift to clean gas only very gradually. To begin, the rural elite, parading as the rural poor, will be the main beneficiaries.

Besides, it will take years to create an all-India rural network of cooking gas dealers who can supply new cylinders and take away used cylinders. The ground reality will be slow, incremental progress.

I am not usually a votary of expanding subsidies. But I fully support subsidies for rural cooking gas to save rural lives.Future budgets must provide far bigger sums. At last we have recognized a huge problem terribly neglected for decades. The emphasis is no longer on fuel efficiency through modern chullahs, but on saving rural lives through clean fuels. That is a welcome, overdue change of approach.

Source: Economic Times

I-T dept takes tech help to tackle HNIs' tax return cases : CBDT

The Income Tax department is using non-intrusive technology to tackle cases of "understatement" in tax returns filed by higher income groups and those in the super-rich category, the CBDT on Wednesday said.
Talking about the surcharge levied on high income taxpayers in the Budget, Chairman of the Central Board of Direct Taxes (CBDT), Atulesh Jindal, said the number of such people, having salaries over Rs one crore per annum, is less than a crore.

"I agree that there is some understatement of income as far as these higher income groups are concerned. Some committees, set up to study this matter, have also suggested that understatement is made among the higher income groups. However, this is in certain cases and all of them are filing their returns, no doubt. We are trying to make use of Information Technology (IT) to tackle such cases. The emphasis is on using more non-intrusive methods. We are making use of IT tools on a very large scale. We also have a very robust system to match the information that we have, from what we get," Jindal told PTI.

He said the surcharge was introduced to "compensate" for the abolition of the wealth tax. When asked how many assessees were in this category of super-rich in the country, Jindal said the figure is "less than a crore."
"The main emphasis of the Budget is to provide adequate funds for social schemes. A very substantial amount has been kept for infrastructure," the top CBDT official said, calling it a very "balanced" Budget.
Finance Minister Arun Jaitley, in his budget speech on February 29, had proposed to "raise the surcharge from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs one crore".

A surcharge of 10% on taxable income of Rs one crore and above was imposed in 2013-14 by the then Finance Minister P Chidambaram.

In the last Budget, Jaitley had abolished the wealth tax and replaced it with an additional surcharge of two% on the super-rich with a taxable income of over Rs one crore. Jindal said the Budget has proposals that would help the government's 'Make in India' initiative and lead to simplification of tax laws.

"A lot of attention has been given to Make in India by ease of compliance to income tax provisions in this Budget. These subjects have been given utmost priority," he said.
The CBDT Chairman said a number of recommendations of the R V Easwar Committee have been included in the Budget which will simplify provisions and measures to facilitate ease of business and compliance (with tax laws).

"A number of those recommendations have been implemented either in the Budget or by way of issue of circulars or instructions (in the recent past). TDS provisions in particular have been streamlined keeping in view the recommendation of the committee in respect of certain heads. Threshold limits have been raised. Limits have been suitably enhanced. In certain items, the rate of deduction has been lowered like that for commission payment," he said.

The Easwar Committee was set up by the government last year to simplify Income Tax laws and procedures.

CBDT spares investors from capital gains disputes

Ndividual equity investors now have the sole discretionary power to decide if their income from equity is taxable or not, as per a Central Board of Direct Taxes (CBDT) circular.

The move will particularly benefit long-term equity investors, who were under scrutiny and whose capital gains were sometimes treated as business income.

The circular states, “In respect of listed shares and securities held for more than 12 months immediately preceding the date of transfer, if the assessee desires to treat the income arising from the transfer thereof as capital gain, the same shall not be put to dispute by the assessing officer.”

This simply means the individual investor sells her shares after a year, she does not have to worry about litigations and the income is non-disputable. Such cases were often open to ambiguous interpretations. The criteria for such ambiguity were many -- frequency of transactions, source of funding or even the classification of transactions in the financials.

Capital gains arising from sale of shares held for more than a year are exempt from tax.

“This is a positive move for Dalal Street, and the government has taken the right step to encourage long-term investors. Now whether you borrow money and invest or it’s your own capital, as long as you sell after a year, you are out of taxation and legal issues,” says Ambareesh Baliga, CEO, Honeycomb Wealth Advisors.

Girish Vanvari, KPMG head of tax, too feels it is a step towards ironing out legal ambiguity. “This will reduce litigation and will be very good for capital market investors. In the spirit of the circular, this should not enhance scrutiny in cases of investments that are less than 12 months, which may also be capital assets.”

However, once the assessee or investor in this case decides to treat his or her income as capital gains and not as business income, one cannot change the category in the subsequent years.

“Opting for business income gives the advantage of claiming deductions over expenses and in times of falling stock prices, but if one opts for capital gains then you can’t avail these benefits. The trade off is between paying taxes and claiming deductions,” says Sujit Ghosh, partner, Advaita Legal. However, the larger question, he says is whether the circular can be binding on the assessee. “It is an established principle of law that circulars don’t bind the assessee, but only bind the revenue,” he adds.

Moreover, while the spirit of the circular is sound, the implementation is yet to be seen.

CBDT forms directorates to monitor taxpayer service

To reduce grievances of tax payers, the revenue department has set up a dedicated structure for delivery and monitoring of taxpayer services.

CBDT Member (Revenue and Tax Payer Services) will oversee the related services in Central Board of Direct Taxes, the CBDT said in a statement.

Two separate Directorates - Directorate of Tax Payer Services I and Directorate of Tax Payer Services II - have been set up, it added.

"Together, these Directorates will be responsible for delivery and monitoring of taxpayer services in the field offices and e-services deliverable through various electronic platforms of the Department," CBDT said.
They will oversee and coordinate all matters relating to grievances of taxpayers and ensure their timely redressal, it added.

The I-T Department has been addressing grievances through Centralised Public Grievance Redress and Monitoring System (CPGRAMS), Aayakar Seva Kendras (ASK), online grievance redressal through Central Processing Centre (CPC), etc.

Taking another step in this direction, the CBDT has issued an order setting up a dedicated structure for delivery and monitoring of tax payer services.

CBDT said the responsibility for delivery of taxpayer services has also been assigned at every level in the field offices.

"This will ensure accountability of officials in redressing grievances in a time-bound manner," it said.

The report of the Tax Administration Reforms Commission (TARC) had also accorded considerable importance to redressal of grievances and a customer-focused approach in the department through creation of a taxpayer services vertical.

This structure will fulfil some of the most significant recommendations of the TARC, CBDT added.

With this, the CBDT expects a noteworthy reduction in taxpayer grievances and enhanced taxpayer satisfaction.

New wing to resolve taxpayers' complaints

Central Board of Direct Taxes (CBDT) has created a new wing in the income tax department to exclusively deal with taxpayers' grievances and complaints related to delay in issue of refunds and problems in filing tax returns among others.
This is the first time that the I-T department is witnessing a re-designation of posts, from top to bottom, to include grievance redressal and taxpayer services as an essential charge of work, albeit, by using the existing manpower of the department.

An official order issued in this regard on February 26 said approval has been accorded for "setting up a dedicated structure for delivery and monitoring of taxpayer services in the Central Board of Direct Taxes and its attached and sub-ordinate offices, with immediate effect and until further orders."

In this connection, the post of CBDT member (revenue) has also been re-designated as member (revenue and tax payer services) and the principal director-general of income-tax (administration) has been re-designated as that of (administration and tax payer services) with two new separate directorates coming up-- tax payer services I and II.
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Instead of correcting the existing ones, they go for a new set ! Additional burden through new babus to rule the new system !

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The new directorates will "oversee and coordinate all matters relating to grievances, issues pertaining to taxpayers falling within the jurisdiction of Assessing Officers across the country."
The order said the new units will "devise an effective monitoring and reporting mechanism for tax payer services in field offices, review and monitor the implementation of the citizens charter of the department and carry out research and surveys on taxpayer satisfaction."

They have also been tasked to deal with taxpayer complaints relating to matters such as processing of income-tax returns (ITRs), refunds, demand verification, permanent account number (PAN) and issues related to the central processing centre (CPC) in Bengaluru which deals with subjects of the tax paying public on a daily basis.

Sec 17 showroom fined 17,000 for charging extra VAT

Taking serious note of the practice of traders charging value added tax (VAT) on price which is inclusive of all taxes because of discount offers, the District Consumer Disputes Redressal Forum asked an Adidas showroom in Sector 17 to refund Rs 449.93 and pay Rs 17,000 to a consumer.

Anu Pratap, a resident of Sector 16, Chandigarh in her complaint before Consumer Forum said she bought a pair of shoes from the showroom under a promotional offer of 40% off.

"Maximum retail price of the said shoes was Rs 5,999 which was inclusive of all taxes," the complaint read. She alleged that after giving 40% discount, the opposite parties charged Rs 4,049 from her and charged Rs 449.93 as VAT on Rs 5,999, which was already inclusive of all taxes.

Pratap served a legal notice on showroom authorities seeking refund of the excess amount charged. But instead of refunding the amount, they sent a "vague and evasive reply" justifying their action of charging VAT.

The complainant described the aforesaid act and conduct as deficiency in service and unfair trade practice. Despite a notice, no one appeared on behalf of the showroom and the case was proceeded ex-parte.

"This act of the showroom managers draws an adverse inference against them," the forum stated. Their non-appearance shows they have nothing to say in their defence against the allegations made by the complainant. Therefore, assertions of the complainant go unrebutted and uncontroverted, the forum held.

Super-rich want tax review on corporate dividends

After protests from middle class against the EPF provisions, the super-rich too have raised demands that the NDA Government reconsider its Budget proposal regarding the taxation of incomes from corporate dividends in excess of Rs.10 lakh.

At a meeting of former presidents of the Confederation of Indian Industry (CII) with Economic Affairs Secretary Shaktikanta Das, demands were raised that the proposal be withdrawn or amended as it amounts to triple taxation with first corporate profits getting taxed, then the tax on dividend distribution and now the proposed additional 10 per cent tax in the hands of high dividend earners.

Former CII President Rajive Kaul and Salil Singhal of PI Industries both said that the proposal “amounts to triple taxation.” Former CII President Sunil Munjal suggested that the proposed tax be deducted at source. “It will lower the administrative costs,” Mr. Munjal told The Hindu.

The CII will collate the various requests for reconsideration and comments on various budget proposals made at Wednesday’s meeting to be submitted to the Finance Ministry.

Former CII President Rahul Bajaj, who was also present at the meeting, told The Hindu that he was not in agreement with the demands made: “I think the Finance Minister is doing the right thing by introducing progressive taxation of dividend incomes”.

Under the existing rules, dividends are taxed at the rate of 15 per cent at the time of distribution in the hands of the company declaring dividends. As a result, tax payers even with high dividend income and who fall in higher income tax brackets are subjected to dividend tax only at the rate of 15 per cent.

It is with the view to eliminate this vertical inequity across dividend income earners that the budget has proposed an additional 10 per cent tax on income in excess of Rs.10 lakh from dividends on corporate profits (calculated after paying corporate tax). Individuals, Hindu Undivided Families and firms that are resident in India will have to pay the additional tax that is proposed to take effect from April 1, 2017, according to the budget documents.

If dividend payments similar to the previous two years are distributed at the Reliance Industries, its Chairman and Managing Director Mukesh Ambani could have to cough up more than Rs.100 crore by way of the additional tax, according to reports. Wipro Chairman Azim Premji could also be among the promoters taking big hits on dividend earnings.

Infra bonds not to be tax-free in FY17

The government on Wednesday clarified that the bonds that infrastructure finance companies have been allowed to issue in the next financial year would not have a tax-free status.

“These bonds will not be tax-free. Tax-free bonds distort the market,” secretary in the department of economic affairs Shaktikanta Das said here.

He said there is no proposal for allowing issue of tax-free bonds pending with the government.

Interest income on tax-free bonds is not taxed. However, capital gains arising out of trading of these bonds are subject to tax. Money invested in these bonds is not eligible for deduction from taxable income.

For the 2016-17, the government has announced in the budget that to augment infrastructure spending further it will allow six state-run companies to raise Rs 31,300 crore through bonds.

Of the total, National Highway Authority of India (NHAI) will raise Rs 15,000 crore through issue of bonds.

Other entities that will be allowed to raise funds through bonds include Power Finance Corporation, Rural Electrification Corporation, Indian Renewable Energy Development Agency, Nabard and the Inland Water Authority.

In 2015-16, these companies had been given permission to raise Rs 40,000 crore through tax-free bonds. It was done after a gap of year. Now again tax-free bonds would not be allowed.

Tax demand on Vodafone, Cairn cannot be disputed: CBDT

Asserting that the tax demand against them has been “rightly generated”, the Central Board of direct Taxes (CBDT) on Tuesday said companies such as Vodafone and Cairn Energy should promptly avail the one-time dispute resolution scheme announced in the budget to close the issue by paying the principal tax and getting waiver on interest and penalty.

CBDT chairman Atulesh Jindal said “as long as” the retrospective amendment of the I-T Act passed by Parliament remains valid, the “demand (of tax against them) remains valid.”

Jindal said apart from UK’s Vodafone Group and Cairn Energy, there are about a dozen more such companies which are facing similar demands due to the retrospective amendment of the Income-Tax Act.

“They (companies) are basically challenging the retrospective amendment. Retrospective amendments have been passed by Parliament. They have not gone against passing of retrospective amendment before any court...so, as long as the retrospective amendment is valid, the demand remains valid. Of course, it (demand) very much remains and this is a rightly generated demand,” he said.

Finance minister Arun Jaitley, in his budget speech on Monday, announced a new dispute resolution mechanism for such companies. “In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of dispute resolution for them,” Jaitley said.

The scheme entails paying up of the principal tax by the company and at the same time getting a waiver on interest and penalty.

The CBDT chief said the government has always made it clear that tax disputes “are not” covered under the Bilateral Investment Promotion and Protection Agreement (BIPA).

The department cannot go back on the tax demand raised against these firms as assessment orders were “already passed” and “demands raised” before the I-T Act was amended retrospectively, he added.

The Direct Tax Dispute Resolution Scheme, 2016

The Hon’ble Finance Minister, in his budget speech, said that litigation is a scourge for a tax friendly regime and creates and environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the department. There are about 3 lakhs tax cases pending with the first appellate authority with disputed amount being 5.5 lakh crores. In order to reduce this number he proposed a new Dispute Resolution scheme for direct tax as well as indirect tax.

Under this scheme a taxpayer, who has an appeal pending as on date before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. No penalty for disputed tax up to ₹ 10 lakhs will be levied. Cases with disputed tax exceeding ₹ 10 lakh will be subject to 25% of the minimum of the imposable penalty for both direct and indirect taxes. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty.

The Direct Tax Resolution Scheme

Clause 197 to 208 of Finance Bill, 2006 seeks to insert a new Chapter X for the purpose of Direct Tax Dispute Resolution Scheme 2016. The scheme will come into effect from 01.06.2016 and be open for declaration made up to a date to be notified by the Central Government in the Official Gazette.

Definitions

Before going into the provisions of this scheme the definition of two terms are highly to be referred to. The term ‘specified tax’ is defined under Clause 198 (g) of the Bill as a tax-

• the determination of which is in consequence of or validated by any amendment made to the Income Tax Actor the Wealth Tax Act with retrospective effect and relates to a period prior to the date on which the Act amending the Income Tax Act or the Wealth Tax Act, as the case may be, received the assent of the President; and
• a dispute in respect of such tax is pending as on 29.02.2016.

The term ‘tax arrear’ is defined under Clause 198 (h) as a the amount of tax, interest or penalty determined under the Income Tax Act or the Wealth Tax Act,1957 in respect of which appeal is pending before the Commissioner or Income Tax (Appeals) or the Commissioner of Wealth Tax (Appeals) as on 29.02.2016.

Non applicability of the scheme

Clause 205 gives the list for which the provisions of this scheme shall not apply, as detailed below:

• in respect of tax arrear or specified tax-

• relating to an assessment year in respect of which an assessment has been made under Section 153Aor 153C of the Income Tax Act or assessment or reassessment for any of the assessment years, in consequence of a search initiated under Section 37A or requisition made under Section 37B of theWealth Tax Act if it relates to any tax arrear;
• relating to an assessment or reassessment in respect of which a survey conducted under Section 133A of the Income Tax Act or Section 38A of the Wealth Tax Act, has a bearing if it relates to any tax arrears;
• relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration;
• relating to an undisclosed income from a source located outside India or undisclosed asset located outside India;
• relating to an assessment or reassessment made on the basis of information received under an agreement referred to in Section 90 or Section 90A of the Income Tax Act, if it relates to any tax arrear;

• to any person in respect of whom an order of detention has been made under the provisions of COFEPOSA-

• such order of detention, being an order to which the provisions of Section 9 or Section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under Section 8 of the said Act or before the receipt of the report of the Authority Board; or
• such order of detention, being an order to which the provisions of Section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under Section 9(3) or on the report of the Advisory Board under Section 8, read with Section 92) of the said Act; or
• such order of detention, being an order to which the provisions of Section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under Section 12A(3) or on the basis of the report of the Advisory Board under Section 8 read with Section 12A(6) of the said Act; or
• such order of detention has not been set aside by a court of competent jurisdiction;

• to any person in respect of whom prosecution from any offence punishable under the provisions of IPC, the Unlawful Activities (Prevention) Act,1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prevention of Corruption Act, 1988 or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts;
• to any person notified under Section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

Declaration of tax payable

Clause 199 provides for the declaration of tax payable and Clause 200 provides for the particulars to be furnished in such declaration. Clause 199 provides that where a declarant on or after 01.06.2016 but on or before a date to be notified by the Central Government, a declaration to the designated authority in respect of tax arrear, or specified tax, the amount payable under this scheme as detailed below:

• in case of pending appeal related to tax arrear being-

tax and interest,-

• in a case where the disputed tax does not exceed ₹ 10 lakh the whole of the disputed tax and the interest on disputed tax till the date of assessment or reassessment, as the case may be; or
• in any other case, the whole of disputed tax, 25% of the minimum penalty leviable and the interest on disputed tax till the date of assessment or reassessment, as the case may be;

penalty, 25% of minimum penalty leviable and the tax and interest payable on the total income finally determined.

• in case of specified tax, the amount of such tax so determined.

Particulars to be furnished in the declaration

Clause 200 provides the particulars to be furnished in the declaration. The declaration shall be in such form and verified in such manner as may be prescribed. If the declaration is in respect of tax arrear, appeal in respect of the disputed income/wealth and tax arrear pending before the Commissioner (Appeals) shall be deemed to be withdrawn.

If the declaration is in respect of specified tax and the declarant has-

• filed any appeal before the Commissioner (Appeals) or Tribunal or the High Court or the Supreme Court or any writ petition against any order of the specified tax, the declarant shall withdraw such appeal or writ petition with the leave of the Court wherever required and furnish proof of such withdrawal along with the declaration;
• initiated any proceeding for arbitration, conciliation or mediation or has given any notice thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India whether for protection of investment or otherwise, he shall withdraw such notice or the claim, if any, in such proceedings prior to making the declaration and furnish the proof thereof along with the declaration.
• If the declaration is in respect of specified tax, the declarant shall furnish an undertaking in such form and verified in such manner as may be prescribed waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to the specified tax which may otherwise be available to him under any law for the time being in force, in equity, by statute or under an agreement or otherwise;

Payment

Clause 201 provides that the designated authority shall, within a period of 60 days from the date of receipt of the declaration, determine the amount payable by the declarant and grant a certificate in such form as may be prescribed, to the declarant setting forth therein the particulars of the tax arrear or the specified tasks, as the case may be, and the sum payable after such determination.

Order of designated authority

The declarant shall pay the sum determined by the designated authority within 30 days of the receipt of the certificate and intimate the fact of such payment to the designated authority with proof thereof. The designated authority shall pass an order stating that the declarant has paid the sum.

Every order passed shall be conclusive as to the matters stated therein and no matter covered by such order shall be re-opened in any other proceedings or as the case may be, under any agreement, whether the protection of investment or otherwise, entered into by India with any other country or territory outside India.

No appellate authority or arbitrator, conciliator or mediator shall proceed to decide any issue relating to the specified tax mentioned in the declaration and in respect of which an order has been made by the designated authority or the payment of sum determined.

Revival of case

Clause 200 (5) provides that where any material particular furnished in the declaration is found to be false at any stage or the declarant violates any conditions of the scheme or the declarant acts in a manner which is not in accordance with the undertaking given by him shall be presumed as if the declaration was never made under the scheme. The proceedings against the declarant are or were pending shall be deemed to have been revived.

Immunity

Clause 202 gives immunity from initiation of proceedings in respect of offence and imposition of penalty in certain cases. The designated authority shall grant, subject to the conditions-

• Immunity from instituting any proceedings in respect of an offence under the Income tax act or wealth tax act;
• Immunity from imposition or waiver of penalty under both the Acts in respect of-

• Specified tax covered in the declaration; or
• Tax arrear covered in the declaration to the extent the penalty exceeds the amount of penalty;

• Waiver of interest in respect of-

• Specified tax covered in the declaration; or
• Tax arrear covered in the declaration to the extent the interest exceeds the amount of interest.

Conditions

Clause 203 of the Bill provides that any amount paid in pursuance of a declaration shall not be refundable under any circumstances. Clause 204 provides that nothing contained in this scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to which the declaration has been made.

Powers of Central Government

Clause 206 gives powers to Central Government to issue directions or order to the authorities as it may deem fit for the proper administration of this scheme. No direction or order shall be issued so as to require any designated authority to dispose of a particular case in a particular manner.

The Central Government may, if it considers necessary or expedient so to do, for the purpose of proper and efficient administration of the scheme and collection of revenue, issue general or special orders in respect of any class of cases, setting forth directions or instructions as to the guidelines, principles or procedures to be followed by the authorities in the work relating to administration of the scheme and collection of revenue. Such order may, if the Central Government is of the opinion that it is necessary in the public interest so to do, be published in the Official Gazette in such manner as may be prescribed.

Clause 207 gives powers to the Central Government to remove difficulties by order which is not inconsistent with the provisions of this scheme. No such order shall be made after the expiry of a period of 2 years from the date on which the provisions of this scheme come into force.

Clause 208 gives powers to the Central Government to make rules for carrying out the provisions of this Rule in the following matters-

• The form in which a declaration may be made and the manner in which such declaration may be verified;
• The form of certificate which may be granted;
• The manner in which orders may be published;
• Any other matter which by this scheme is to be, or may be, prescribed, or in respect of which provision is to be made, by rules.

Budget brings procedural changes for goods and services tax: CBEC chief

Gearing up for the roll out of the goods and services tax regime, the Union Budget 2016-17 has introduced several procedural changes as well as brought in a number of sectors within the tax net, said Najib Shah, Chairman, Central Board of Excise and Customs.

A re-jig in the rates of service tax and excise duty would be possible only when a decision is taken by the proposed GST Council, he said.

“Before we revamp rates, the Constitution Amendment Bill has to be passed by Parliament and the GST Council needs to be set up. The Council will decide the rates,” he told BusinessLine.

Finance Minister Arun Jaitley was expected to announce a hike in service tax rates and bring the excise duty rates in sync for GST in the Union Budget that was presented on February 29.

However, he remained largely silent on the long pending indirect tax reform though the Budget announced amending the Cenvat Credit Rules, 2004, to improve credit flow and bringing sectors such as jewellery and branded ready-made garments in the tax net.

Chief Economic Adviser Arvind Subramanian in his report on possible revenue neutral rates for GST had suggested a standard rate between 17 per cent and 18 per cent for GST. But the report is yet to be examined by the Empowered Committee of State Finance Ministers.

Shah also said the model GST law that will be enacted by the Centre and States is still under discussion in the Empowered Committee and expressed hope that it will be finalised soon.

“The draft law is still under discussion and will be put out for public comments before it is finalised,” he said.

Though a new deadline for GST has not been announced, the CBEC is working on administrative and infrastructure preparedness for the new tax, he added.

The Finance Minister is expected to take up the Constitution Amendment Bill in the ongoing Budget Session of Parliament.

CBDT says no unfettered powers given to tax officers

CBDT has said the taxman has not been given any "unfettered" power and adequate safeguards have been deployed for regulating the provisions aimed to check tax evasion from overseas locations.

The Central Board of Direct Taxes (CBDT) expressed hope that the General Anti Avoidance Rules (GAAR) would be implemented from next fiscal.

"There is no reason why it shouldn't come (from April 1 next year). GAAR provisions are there in several countries and as Finance Minister ( Arun Jaitley) also mentioned there is a very thin line between tax avoidance and evasion.

"Various safeguards have also been provided and it's not that unfettered powers have been given to our Assessing Officers (of the IT department)," CBDT Chairman Atulesh Jindal told PTI in an interview.

GAAR provisions, he said, have been "mainly brought in to check those cases where tax avoidance arrangement has been resorted to without any business consideration and just to avoid legitimate payment of tax."

The CBDT boss said while a number of consultations have taken place in the past on the subject, more can be done as there was still a year to go for the operationalisation of the new rules.

In his budget speech on February 29, Jaitley had said that these rules, which were deferred earlier, will be implemented from the beginning of the financial year in 2017.

"I would like to reiterate our commitment to implement GAAR from April, 2017," Jaitley had said.

Last year, the Finance Minister had deferred the applicability of this new tax regime by two years.

Government had earlier proposed imposing GAAR from April 1, 2015, for those claiming tax benefit of over Rs 3 crore. The rules are aimed at minimising tax avoidance for investments made by entities based in tax havens.

Jaitley had also said that in order to meet India's commitment to Base Erosion and Profit Shifting (BEPS) initiative of OECD and G-20, the Finance Bill, 2016, includes provision for requirement of country-by-country reporting for companies with a consolidated revenue of more than 750 million Euro.