Expectations from Union Budget 2016
Expectations from Union Budget 2016
The countdown for the Budget 2016 has begun. From average taxpayer to tax experts, all eyes are transfixed on the Union Budget 2016. It is to our credit that many of our predictions came true in the Union Budget.
This time also we have recommended substantive/procedural changes and various other matters which CBDT should clarify to end the controversy and to bring about certainty in the Income-tax laws.
Our expectations from the Union Budget, 2016
Union Budget likely to reduce corporate tax rate with rationalization of exemptions
On February 28, 2015 the Hon’ble Finance Minister, Mr. Arun Jaitley had proposed to reduce the corporate tax rate from 30% to 25% in his Budget Speech. Snippets from budget his speech are given hereunder:
“The basic rate of Corporate Tax in India at 30% is higher than the rates prevalent in the other major Asian economies, making our domestic industry uncompetitive. Moreover, the effective collection of Corporate Tax is about 23%. We lose out on both counts, i.e. we are considered as having a high Corporate Tax regime but we do not get that tax due to excessive exemptions. A regime of exemptions has led to pressure groups, litigation and loss of revenue. It also gives room for avoidable discretion. I, therefore, propose to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years.“
On the expected lines, the Finance Ministry on November 20, released following plan to bring down the tax rate from 30% to 25% over the next four years.
1) Profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate taxpayers.
2) The provisions having a sunset date will not be modified to advance the sunset date nor will the sunset dates provided in the Act be extended.
3) In case of tax incentives with no terminal date, a sunset date of March 31, 2017 will be provided either for commencement of the activity or for claiming of benefit, depending upon the structure of the relevant provisions of the Act.
4) There will be no weighted deduction with effect from March 31, 2017.
Thus, it is clear that corporate tax rate would be reduced and some tax exemptions will be rationalized in the ensuing budget 2016.
Tax incentives for start-ups
The Government of India has announced ‘Start-up India’ initiative for creating a conducive environment for start-ups. So, it is very likely that big announcements would be made in upcoming Budget 2016 to promote start-ups in India.
As per recent notification issued by the Ministry of Commerce and Industry, Government of India, an entity shall be considered as a ‘start-up’:
a) For a period of five years from the date of its incorporation/registration;
b) If its turnover for any of the financial years does not exceeded Rs. 25 crore; and
c) It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
However, any such entity formed by splitting-up or reconstruction of a business already in existence shall not be considered a ‘start-up’.
The tax incentives which could be proposed for Start-ups in Union Budget 2016 are as under:
a) Exemptions may be proposed in respect of a capital gain arising in respect of investment made in the Start-up eco-system.
b) Profits of Start-up may be exempted from income-tax for a period of 3 years. The exemption may be available subject to non-distribution of dividend by the Start-up;
c) Consideration received by a start-up for issuing shares at a price higher than its fair market value may not be taxable as income from other sources in the hands of start-up under section 56(2)(viib) of the Income-tax Act.
Disallowance under Section 14A should be reconsidered
a) Dividend income and share in profit of firm should not be treated as exempt income for Section 14A disallowance as these incomes always suffer economic taxation.
b) Section 14A disallowance should not exceed amount of total expenditure claimed under any provision of the Act.
Such recommendations are in line with the report submitted by the Income Tax Simplification Committee headed by Hon’ble Justice R.V. Easwar.
Amendments needed in MAT provisions
Corporate India gleefully greeted the Budget 2015 when the Finance Minister announced the scaling down of corporate tax rate in the next 4 years to finally halt at 25 percent. In the backdrop of slowdown of economies across the globe, corporate India might be tempted to seek some tax benefits to spur growth in India by way of amendments to certain tax provisions, besides reduction in tax rates in the ensuring budget.
Such reduction in the corporate tax rate would not be able to achieve cherished objective of the corporate sector if such benefits are taken back by way of Minimum Alternative Tax. Thus, it is recommended as under:
a) Relief from applicability of MAT should be allowed to foreign companies if they do not have PE in India;
b) Interest under sections 234B and 234C should not be levied for default/deferment in payment of advance tax when the income is assessed under MAT provisions;
c) Unutilized MAT credit should be allowed to successor in cases of business reorganization;
d) Long-term capital gains exempt under Section 10(38) should be exempt from levy of MAT as well; and
e) No disallowances should be made under section 14A while computing book profit in terms of section 115JB.
Applicability of Section 206AA if tax rate under treaty is more beneficial
As per section 206AA where the deductee does not furnish the PAN, tax shall be deducted at source at higher of the following rates:
a) rate specified in the relevant provision of this Act; or
b) rate or rates in force; or
c) 20%.
As per provisions of Section 90, non-resident taxpayers (to whom provisions of DTAA are applicable) shall apply provisions of the Income-tax Act or DTAA whichever, is more beneficial to them. However, due to application of Section 206AA such non-residents are taxed at higher rate of 20% even if tax rates under treaty are beneficial. In certain judicial precedents it was held that section 206AA, being just a procedural section relating to recovery of tax, cannot override section 90(2) and upheld the TDS at rates as per DTAA.
Thus, this issue needs to be clarified in the ensuing Budget.
Transfer Pricing and Marketing intangibles
Marketing intangibles have been one of the most contentious issues in Indian Transfer pricing litigation history. With a number of game changing and landmark rulings rolled out in 2015, a level playing field has been created in the matter. However, there is still room for more clarity to be provided as the matter travels to The Supreme Court, for the multinationals to take steps to mitigate onerous litigation and tax exposure in the matter.
It is recommended that following transfer pricing issues should be addressed to in the ensuing Finance Bill, 2016:
a) Whether AMP expense could be considered as an international transaction?
b) Whether Bright line test should be applied to identify excess AMP expenses?
c) Whether direct marketing, sales promotion and selling expenses should form part of AMP expense?
d) Aggregation of closely linked transactions in case of marketing intangibles.
DTAA benefit should be allowed on basis of self-declaration instead of TRC
Non-residents in India intending to avail benefit under the DTAA between India and any other country need to produce a certificate of his being resident, i.e., Tax Residency Certificate (‘TRC’) from the tax authorities of the country of which he is a resident. It poses a few challenges, which are given hereunder:
a) Many of the countries follow calendar year as the tax year. Therefore, when claiming benefit for the Indian fiscal year (from April 1 to March 31), TRCs for two tax years of that country would be required, which may not be available at the same time. Therefore, the tax benefit for the entire Indian FY may not be claimed together.
b) Many countries may not have any provision under their tax laws for issuance of TRC. It implies that the benefit under the tax treaty, which is otherwise available, cannot be claimed just because TRC is not issued by foreign country, although the individual qualifies as resident in the foreign country.
c) Obtaining TRC is time taking and is not an instant process. Foreign tax authorities need to review details furnished by an individual before issuing TRC. Also, many countries issue TRC only after the tax return for the year for which TRC is sought has been filed and processed by the tax authorities. A dilemma is often caused taxpayers whether to claim treaty benefit in India pending the receipt of TRC at the time of filing the Indian tax return. This is because requirement in the tax return forms to mention the TRC details
Thus, it would be a welcome move if the provisions of the Indian income-tax laws are amended to enable the individual to claim the DTAA benefit based on self-declaration or foreign tax return to avoid these challenges.
Interest on refund arising on excess payment of self-assessment tax
Section 244A of the Act, deals with the grant of interest on refund of any amount of tax, which becomes due to the assessee in terms of the provisions of the Act. The section was inserted in the statute as a measure of rationalization, to ensure that the assessee was duly compensated by the Government by way of payment of interest for monies legitimately belonging to him and wrongfully retained by the Government without any gaps.
Though section 244A starts with the words ‘refund of any amount of tax’, yet when we talk about eligibility of interest on amount of refund which is deposited by the taxpayers by way of self-assessment tax under section 140A, the same is highly debatable issue and has been a subject matter of litigation.
So, it is recommended to amend section 244A to allow interest on refund arising due to excess payment of self-assessment tax.
Clarity needed on taxability of Joint Development Agreements
For development of real estate, concept of joint development arrangement has emerged as a popular model wherein land owner and developer combine their resources and efforts. Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost. Thus, land is contributed by the land owner and the cost of development and construction is incurred by the developer.
The land owner may get consideration in the form of either lump sum consideration or percentage of sales revenue or certain percentage of constructed area in the project, depending upon the terms and conditions agreed upon between them. In this manner, the resources and efforts of land owner and developer are pooled together so as to bring out the maximum productive results.
There is no clear cut guideline under the Income-Tax Act to determine the taxability of joint development agreements. Thus, guidelines prescribed by judicial precedents have to be considered to determine taxability of land owner and developer. However, divergent views have been expressed by the Courts on certain complex issues in case of Joint Development Agreements. It is expected that in the forthcoming Union Budget 2016-17 clarity may be brought out with respect to taxability of Joint Development Agreement.
Taxability of secondment arrangements
Under a typical secondment arrangement, the seconded employees/assignees are transferred to the host country entity (the Indian entity) to work on special assignments, which are generally technical or managerial in nature. For the period under secondment, the secondees work under the direction, control and supervision of the Indian entity. Through the seconded employees the investors are able to efficiently nourish their investments in India. However, there are no clear cut guidelines to determine taxability in secondment arrangements. Thus, the secondment agreements have led to legal wrangle’s between revenue and foreign entities.
The Indian Revenue alleges that that foreign entity ultimately exercises its powers and it is the real and economic employer of the secondees. Consequently, the foreign entity has a presence in Indian through its employees and thus has a service PE in India.
Furthermore, in situations where it is not possible to attract service PE, the revenue alleges that the reimbursement of salaries of secondees by the Indian entity is in the nature of ‘fees for technical services under the provisions of Indian tax laws/tax treaty.
It is recommended that in the forthcoming Finance Bill, 2016 the stand of revenue on taxability of sum paid under secondment agreements should be made clear.
Threshold limit and rate of TDS should be rationalized
It is recommended thatthe age-old threshold limits of TDS should be increased to avoid the situation of first collection of taxes and its subsequent refund. Further, TDS rates should also be rationalized keeping in view the restructuring of the Income-tax rates over the past decade.
Deposit in Capital Gain Scheme should not exceed the due date for filing of return
The provisions of section 54(2) stipulate that the amount of the capital gain which is not utilised by the assessee towards the purchase or construction of the new house before the date of furnishing the return of income under section 139, shall be deposited by him in capital gain account scheme. Section 54F(4) also provides exemption on similar lines.
Judicial authorities have held that for the purpose of Section 54/54F due date for furnishing of return of income as provided under Section 139(1) is subject to extended period as provided under Section 139(4). However, as the issue is not free from doubt and is likely to occur every now and then, it is recommended that a specific date be mentioned in sections 54 and 54F so that this type of uncertainty does not exist.
Section 139(4) does not deem as an extension of due date specified under Section 139(1) in case of carry forward of unclaimed losses. Allowing additional time would be a nagging pain for the department as reconciling the transactions reported in the AIR with the returns would delays for a prolonged period. Timely compliance by the taxpayer should be put into practice.It can be achieved if no extended time is allowed for depositing the unutilized capital gains in the capital gain account scheme.
TDS and Sale of SIM cards/recharge coupons
Telecommunication service providers are now facing new problems with regard to their obligation to deduct tax at source in respect of sale of SIM cards and recharge coupons at discounted price to distributors. Assessing Officers are treating the difference between actual price and discounted price of SIM card/recharge coupon as commission given to distributors, and accordingly, sending notice, treating the service providers as assessee’s-in-default for not deducting tax at source under section 194H.
Recently various High Courts have pronounced their judgments on this issue. Some of cases are:
1) In case of Bharti Airtel Ltd. v. DCIT [2014], the Karnataka High Court held that sale of SIM cards/recharge coupons at discounted rate to distributors is not commission and, therefore, not liable to TDS under section 194H.
2) The Calcutta High court in the case of Hutchison Telecom East Ltd. v. CIT [2015] held that said discount allowed to distributors amounts to commission or brokerage, hence, liable to tax at source under section 194H.
Whether distributors are agents of the telecommunication companies or are just retail traders who are acquiring inventory from such companies and selling them at margin is a matter of debate. Since there are divergent views of various High Courts on the same issue, a clarification in this regard is highly needed.
Above all, requiring the service provider to deduct tax under Section 194H would pose immense administrative problems for them as there are countless distributors operating in entire India. It would be interesting to see how the revenue tackles this issues, especially in current scenario where ending infructuous litigations is paramount for the dept.
Sales consideration as per Sec. 50C is not relevant to compute exemption under Section 54F/54
Section 50C of the Income-tax Act was introduced with effect from April 1, 2003 by the Finance Act, 2002. Section 50C was introduced to make a special provision for determining the full value of consideration in cases of transfer of immovable property.
It has been disputed in the recent past whether such deeming fiction under Section 50C would be considered while computing deduction under Sections 54 and 54F.
Deeming provision should be applied for the purpose for which the said deeming provision is specifically enacted. [Apollo Tyres Ltd. v. CIT [2002]
The legal fiction cannot be extended beyond its legitimate field and will have to be confined to that purpose. [CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985]
Section 50C was introduced in the Income-tax Act with a deeming fiction which cannot be extended to another provision. While computing exemption under section 54 of the Act, actual sale consideration has to be taken into consideration and not stamp duty valuation under section 50C of the Act.
Thus, it is suggested that suitable Explanation may be added to section 50C of the Act that exemption under section 54/54F shall be computed in reference to actual sales consideration and no regard shall be given to the deemed consideration computed in accordance with section 50C.
Characterization of surplus arising from sale of shares
Shares and other securities can be held either as capital asset or stock-in-trade or both. However, the Income-tax Act does not contain any specific guidelines as to the characterization of any particular investment as capital asset or stock-in-trade. While this characterization is essentially a fact-specific determination, the absence of legislative guidance in this regard has resulted in a lot of uncertainty and avoidable litigation.
Thus, amendments should be made to section 2(14) and section 45 of the Income-tax Act to provide that short-term capital gain on sale of shares won’t be re-characterized into business income if the amount of capital gain doesn’t exceed Rs. 5 lakh. Further, long-term capital gain arising from sale of shares should not to be re-characterized, irrespective of the amount of capital gain.This is in line with the report submitted by Income Tax Simplification Committee headed by Hon’ble Justice R.V. Easwar.
Whether reference to TPO could be made during pendency of proceedings?
Whether AO is precluded from making a reference to TPO under Section 92CA(1) for computing arm’s length price of international transaction, if no assessment proceedings is pending before him,? The issue has been a matter of dispute in recent times.
Pune ITAT in the case of Maximise Learning Private Limited v ACIT [2015] 54 taxmann.com 234, has held that such reference to TPO is not possible under the current provisions of the Act.
The AO can compute income from international transaction ‘only in the course of pendency of assessment proceedings’. Hence, it is recommended that an Explanation should be inserted in Section 92CA(1) to clarify that AO can make a reference to TPO only during pendency of assessment proceedings.
Deductibility of discount given on ESOPs
Some of recent judicial pronouncements suggest that the tax fraternity is grappling with the controversy on the tax treatment of the discount on the shares issued to the employees under ESOP.
The revenue has been contending that the said discount can never be allowed as deduction on the following grounds:
a) The discount offered under ESOP is not in the nature of expenditure;
b) Such discount is not given in the normal course of business carried on by the Company;
c) Such discount merely represents short receipt of premium on issue of shares. If the receipt of premium is not taxable, the short receipt of such premium should also not be allowed as deduction;
d) At the most, such discount could be considered as a short capital receipt or a sort of capital expenditure.
Conversely, the Companies issuing ESOP’sargue that the primary object of ESOP is not to raise share capital but to earn profit by securing the consistent and concentrated efforts of its dedicated employees during the vesting period. Therefore, such discount should be construed as nothing but a part of package of remuneration. Such discounted premium on shares is a substitute for giving direct incentive in cash for availing of the services of the employees.
In order to avoid unnecessary litigation’s, it would be prudent for the Finance Minister to clarify this stand on the tax treatment of Discount on issue of shares under ESOP. The industry expects a clarification stating that the discount on ESOP scheme should be amortized over the vesting period.
Carry forward of excess application of funds by charitable trust
We have witnessed plethora of judgments on issue, whether trust can carry forward excess application of funds?
Excess application of funds over and above income of trust can arise only when funds are applied from the corpus of the trust, accumulated funds, loans or goods and services received from the creditors. When funds are applied from borrowed funds or by way of sundry creditors the same can be treated as application of funds in the year in which such loan/sundry creditors are re-paid from the income of the trust. However, when amount is applied from the corpus fund or accumulated fund the same cannot be treated as application of funds under section 11, because such funds have already been exempted from the income of trust in the year in which they are received or such amount is set aside.
Thus, it is clear that trust cannot carry forward excess application of funds. It is suggested that some clarity should be brought on this issue by the Union Budget 2016.
Powers of CIT to reject trust’s registration should be defined clearly
The powers of the Commissioner of Income-tax (CIT) to reject an application for registration under section 12AA have always remained a subject matter of controversy and contentions. The Courts of Law have consistently been holding that the CIT cannot go beyond assessing the genuineness of the organization. The purpose of provisions of section 12AA is to ensure that a genuine charitable or religious organization is granted registration without getting into the various details pertaining to type of activity or existence of any commercial or conflict of interest activity, etc. However, we continue to witness plethora of arbitrary rejections under section 12AA where CITs’ continue to exceed their mandate of section 12AA.
Therefore, it is suggested that a proviso may be added to section 12AA regarding the scope and limitations of the powers of the CIT.
Credit of foreign taxes should be allowed while calculating TDS of employee under Sec. 192
Under the current tax regime, there is no provision in the Income-tax Act, enabling the employer to consider admissible treaty benefits (e.g., credits for taxes paid in another country) while calculating TDS under Section 192 of the Act from salary income. Since the credit is otherwise admissible in terms of Section 90/ 91 of the Act, a suitable amendment may be incorporated in Section 192 of the Act providing for the employer to consider credit of such tax paid at the time of deducting taxes. This is in line with the report submitted by Income Tax Simplification Committee headed by Hon’ble Justice R.V. Easwar.
No reassessment solely on basis of audit objections
Section 147 permits initiation of reassessment proceedings when the Assessing Officer has reasons to believe that income has escaped assessment.
Here it is important to take note of CBDT’s Instruction No. 9/2006, Dated 7-11-2006, wherein it is provided that remedial measures either by way of revision under Section 263 or reopening under Section 147 must be taken in all cases where the relevant audit objection is not dropped after considering the explanation or justification offered to audit officials.
However, in most of the cases Judiciary has differed from the views of the CBDT and held that no reassessment could be made solely on basis of audit objections.
Hence, it is recommended to amend Section 147 to provide that no reassessment shall be permitted solely on basis of audit objections since it amounts to change of opinion and creates uncertainty for the taxpayers.
Cost Inflation Index in case of Previous Owner
As per section 47 of the Act, any transfer of capital asset, inter-alia, by way of gift or will, etc., is not regarded as transfer for the purposes of computing capital gain. However, capital gain is levied on subsequent transfer of underlying capital asset. For the said purposes, cost of acquisition of the asset is deemed to be the cost in the hands of previous owner of the property. Further, for determining the nature of capital gain, the period for which previous owner holds the asset shall also be considered, except otherwise provided.
Despite inclusion of period of holding of the previous owner, the cost of indexation is not allowed to be calculated by the revenue from the date of acquisition by the previous owner. The Assessing Officer generally takes a stand that the benefit of indexation shall be allowed with reference to year in whichassessee becomes owner of asset.
The Bombay High Court in the case of CIT v. Manjula J. Shah [2012] 2004 has held that indexed cost of acquisition has to be computed with reference to year in which previous owner first held the asset and not the year in which the assessee becomes owner of asset. The similar ruling has been given by some other High Courts as well.
Hence, it is recommended that the section 48 should be amended to provide that indexation benefit shall be allowed with reference to the year in which previous owner first held the asset if capital asset becomes the property of assessee by virtue of Section 47.
Non-compete fees received by a professional should be taxable
Section 28(va) was inserted by the Finance Act, 2002 to tax the non-compete fee paid to a person to prevent him from carrying out any activity in relation to any business. Prior to this amendment, the compensation paid for non-competition was held as capital receipt and not chargeable to income-tax.
Section 28(va) only talks about non-compete fee received for not carrying out any activity in relation to any business. It doesn’t talk about any sum received for a restrictive covenant in relation to a profession.
Thus, the question which arises for consideration is whether any sum received for a restrictive covenant in relation to a profession would be regarded as capital receipt or revenue receipt?
Recently, The Delhi ITAT in the case of Satya Kant Khosla v. ITO [2015] 63 taxmann.com 293 (Delhi – Trib.) held that sum received by Managing Director of ‘Suzuki India’, a two wheeler manufacturing company, at time of termination of his relationship with said company for not sharing his knowledge with any other person carrying on business of manufacturing of two wheelers would be treated as sum received for a restrictive covenant in relation to a profession, and not business. Therefore, same would not be covered by the provisions of section 28(va).
To avoid litigation on this issue, it is recommended to amend Section 28(va) to clarify that whether sum received for a restrictive covenant in relation to a profession would be chargeable to tax or not?
Presumptive taxation scheme should be extended to the professionals
At present, presumptive taxation scheme is meant only for persons engaged in business. Professionals are deprived of taking advantage of such scheme. Hence, it is suggested that the presumptive taxation scheme should be introduced for professionals as well, whereby the income from profession will be estimated at 33.33% of total receipts in the previous year. The benefit of this scheme should be restricted to professionals whose total receipts do not exceed one crore rupees during the financial year. This is in line with the report submitted by Income Tax Simplification Committee headed by Hon’ble Justice R.V. Easwar.
Indirect Taxation
Rate of Service-tax and its threshold limit is likely to be increased
Recently, a GST panel headed by the Chief Economic Advisor has released its report in December 2015, suggesting the revenue neutral rate (‘RNR’) to be in the range of 15 to 15.50% to be converted to structured rates. The lower rate of GST on goods of special importance has been proposed at 12% and standard rate is proposed at 18%. In line with the proposed GST rate structure, there is a possibility that Government in the ensuing budget may increase the service tax rate from the present level of 14% to 16%.
The increase in the service tax rate will put an additional burden on the taxpayers. In order to ensure that the taxpayers are not overburdened and to give respite to smaller taxpayers, it is expected that Government may increase the threshold exemption of service tax from the present level of Rs. 10 lakhs to 25 lakhs.
The Government may also consider to introduce compounded levy scheme, both for service providers and manufacturers in line with the scheme currently prevailing under most state VAT laws. This scheme allows those taxpayers who are marginally above the threshold exemption limit to pay a flat rate of tax on their turnover without having the requirement to maintain cumbersome records and undergo departmental audits/assessments on regular basis. The compounded levy scheme will encourage tax compliances amongst small taxpayers and will advance ease of doing the business in India.
Need to rationalize present tax concessions/exemptions
The proposed GST regime which will subsume most of the Central and State level taxes is expected to have a single unified list of concessions/exemptions as against the present mammoth exemptions and concessions available under the present tax regime. Therefore, it is expected that Government may consider pruning down or withdrawing some of the existing set of exemptions or concessions to take a step closer to GST.
Corrective actions needed to streamline dispute settlement process
Another agenda for the Government to be addressed in the upcoming budget would be to resolve numerous tax disputes pending at different forums before the roll out of nation-wide GST. It is worth-noting that post introduction of the GST in India these cases may not be of much relevance. Therefore, it is paramount that present pending disputes should not be carried over once the GST be introduced, however, owing to the magnitude of the pending cases, resolution of all pending disputes may not be practically possible. It is, therefore, expected that the Government should take necessary corrective measures to streamline the dispute settlement process.
Uncertainty continues to hover over the minds of taxpayers and global investors due to logjam in the Parliament regarding passage of the Constitution amendment bill. Having said so, it is highly probable that the Government will make various amendments to the existing regulations to keep pace with the biggest transformation in the history of indirect taxation of India.
Need to revise policy of increasing Customs & Excise Duty on petroleum products
The Government would also have to re-evaluate its policy to repeatedly and reflexively increase the Customs and Excise duties on petroleum products. Yes, such increase in customs duties on petroleum products would add to the Government’s revenue basket and would improve its fiscal position. But it would have a highly regressive impact on the populace – the bulk of the tax would be borne by the poor who are already reeling under successive droughts. The decision to lower the Corporate Tax rate from 30% to 25% in a staggered fashion would only accentuate the regressive nature of the increasing levies of customs and excise duties on petroleum products.
Separate provisions required for E-Commerce transactions
E-commerce industry has been flooded with notices from the tax authorities. Both VAT and Service Tax authorities want a pie of the taxes, irrespective of lack of full knowledge or understanding of the new age transactions like cloud computing, online trading, Paytm, etc. Considering the uniqueness of the industry, separate provisions should be provided to determine taxability of e-commerce transactions.
Credit of Swachh Bharat Cess should be allowed
The recently introduced Swachh Bharat Cess (SBC) is also a matter on which amendment needs to be made. SBC has been kept outside the CENVAT chain as clarified by CBEC. Recently, the Finance Ministry has decided to refund the SBC paid by SEZ Units and developers. It is hoped that the benefits should be extended to others as well, at least in the form of credit entitlement.
Need to rationalize Customs Duty Structures
There is a case for rationalizing customs duty structures to obviate ‘inverted duty structures’ – as in the case of ITA bound goods where the final products are exempt, but the inputs used in the manufacture of such goods are / were dutiable to ensure a level playing field for domestic manufacturers. However, there is no case for imposing customs duties on products such as lifesaving drugs and steel – this would only help a few non-competitive domestic manufacturers whilst adversely impacting a large number of other stakeholders in the economy and as a result pull down the economy and adversely impact the well-being of the citizens at large. The thumb rule should be to reduce the customs duty on non-agricultural products.
Industry expects cleaner air on the accumulated balance of EC & SHEC
The government appears to be lagging behind in cleaning air around the treatment of accumulated credit balances of education cess and secondary & higher education cess for about a year now, yet the industry is expecting some favourable reaction from the Government on the issue in the upcoming budget which is just due a few days from now. A positive step would not only put an end to the fate of crores of accumulated credit balance which the assesses are legally entitled to utilize, the step would also infuse fresh enthusiasm in the industry as has seen in the last two budgets that the Government is committed to the growth of the industry at large and is making all out efforts to have a favourable environment in the Country.
At this juncture, while it is important for the Government to take note that no such new issues arise out of the upcoming budget 2016-17 at the same time to have clear guidelines to avoid litigation on such aspects so as to create a positive environment across the spectrum of making India an industrial hub, in line with its overall campaign of Make in India, especially when China is losing its steam.
Levy of service-tax on reimbursements
Taxability of reimbursements and out of pocket expenses incurred while providing taxable service has been a contentious issue ever since service tax law was introduced. Section 67 of Chapter V of the Finance Act, 1994, which provides for the valuation mechanism, has been interpreted by the Tribunals/Courts and conflicting views have been expressed. The legislative intent is to charge service tax even on reimbursements and cost of providing the service, unless it is specifically excluded by virtue of the rules. Interestingly, till date no rules have been framed providing for a criteria to exclude the reimbursements from the purview of taxable value of service. Hopefully, the Government would act in time to rectify this lacunae, in law, which does not implement the legislative intent and will.
Harsh arresting powers in Custom Laws should be relaxed
It has been noticed that threat of arrest by Customs Officers is the major reason for making confessional statements by assessees, even though the issue in their cases pertains to the interpretation of the exemption notification, valuation of goods or classification issues. Therefore, it is expected that suitable instructions may be issued or amendment may be made to section 104 of the Customs Act, 1962 as a move towards ease of doing business.
Interest on differential Excise Duty due to increase in price
Recently, the Supreme Court, in the case of Steel Authority of India held that price revision subsequent to clearance, differential duty ought to be paid only in the month when the revised price is agreed between the buyer and seller. But this case is related to period prior to 2011 and with effect from April 8, 2011, Section 11AA has substituted section 11AB. This newly inserted section does not contain the words “Ought to be paid”. It is expected that ambiguity on this issue will be reviewed in the budget to provide for a legislative amendment to Section 11AA providing suitable clarification.
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