Practical Issues in Income tax and Wealth tax. Key FDI Sectors Mineral and Clay based products...
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International taxationPractical Issues in Income tax and Wealth
tax
Key FDI Sectors Mineral and Clay based products Traditional Industries Tourism Auto Components Agro Processing
Vital Statistics
International taxation is the study of tax implication on a transaction which involves at least one non resident.
International taxation predominantly involves understanding of domestic taxation laws of the respective countries as well as the DTAA.
International Taxation????
Scope of total income is determined based on the following:
Place of accrual of income Place of receipt of income Residential status of the assessee
Scope of Total Income
Source of Income Resident and
Ordinarily
resident
Resident and
Not Ordinarily
resident
Non Resident
Indian Income:
Income earned and received or
deemed to be earned and received
in India
Yes Yes Yes
Income earned or deemed to be
earned outside India but received
in India
Yes Yes Yes
Income earned or deemed to be
earned in India but received
outside India
Yes Yes Yes
Foreign Income:
Income earned and received or
deemed to be earned and received
outside India from a business
controlled from India
Yes Yes No
Income earned and received or
deemed to be earned and received
outside India from a business
controlled from outside India
Yes No No
Scope of Total Income
Nature of Income Condition
Business Income When there is business connection in India
Property income Property or asset source is in India
Income from
transfer of a capital
asset
When the capital asset is in India
Income from
Salaries
Where services are rendered in India
Indian citizen, working for the Government of India and rendering
services outside India
Dividend Income Dividend payable/paid by an Indian Company
Interest, Royalty
and Fees for
Technical Services
If the income is received from:
- Government of India
- A resident assessee except where such payment is for business
outside India
- A non resident assessee where the payment pertains to
business in India
Income Deemed to Accrue of Arise in India – Sec 9
Practical Issues in Income Tax
.
Non residents receiving payments from India need to obtain PAN
PAN is however required only if payment is subject to TDS under Chapter XVIIB
Non furnishing of PAN would lead to deduction of tax at higher of:◦ at the rate specified in the relevant provision of
this Act; or◦ at the rate or rates in force; or◦ at the rate of 20%
Sec 206 AA
Payments for foreign purchases Payments for foreign contracts Payment of export commission Purchase of property from non resident
CBDT has issued circular no 7/2009 dated 22-10-2009 withdrawing circulars No 23 / 1969, No 163/1975 and No 786/2000.
Sec 195
Indian address is not mandatory In the case of foreign companies proof of
foreign address needs to be attested by Indian embassy
Other procedures similar to that of a resident
Obtaining PAN for Non residents
Oppurtunities◦ All remittances outside India must be
accompanied with CA certificate◦ Assessee has to furnish E Form 15CA
Risks◦ Huge risk of scrutiny by Income Tax Department◦ Cost of substantiating claims need to be factored
into◦ Rewards do not generally match the risks
Form 15CB
An individual, originally working for a foreign parent, is deputed to Indian salary
He receives salary from both the Indian subsidiary and foreign parent
TDS u/s 192 shall be deducted on both the salaries
Salary to a person on Deputation
Assessee company had entered into technical assistance agreement with a Japanese company.
As per that agreement, assessee was to be given assistance of Japanese engineers for training engineers of assessee in respect of which it made certain payments to Japanese company.
Assessee had obtained a certificate for nil deduction u/s 195(2)
Transaction subsequently assessed taxable…
Assessing Officer treated said payments as fees for technical services and assessee as an assessee-in-default for not deducting tax at source on said payments
Since assessee had been granted no objection certificate under section 195(2) permitting non-deduction of tax at source and said certificate had never been cancelled, assessee was not liable to deduct tax at source and, therefore, it could not be treated as an assessee-in-default
CIT vs Swaraj Mazda [2011] 198 TAXMAN 305 (PUNJ. & HAR.)
Transaction subsequently assessed taxable…
Assessee is not required to deduct tax at source under section 195 in respect of payment made to foreign companies towards bandwidth charges because same are not in the nature of royalty, fees for technical services or relate to any item of expenditure covered under section 40(a)(i)
Infosys Technologies Ltd.vs Deputy CIT [2011] 10 taxmann.com 1 (BANG. - ITAT)
Payment for Bandwidth charges
The moment a remittance is made to a non-resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i.e., chargeable under sections 4, 5 and 9
Section 195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances being made to non-residents outside India; rather it gets attracted to cases where payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable
GE India Technology Cen. (P.) Ltd. [2010] 193 TAXMAN 234 (SC)
When to deduct TDS u/s 195
Wealth Tax.
For the Financial year 2008-09:- Estimated tax collection of Rs 400 crores- Estimated tax collection cost of Rs 174
crores
Projections for the Financial 2009-10:- Projected tax collection of Rs 425 crores- Projected tax collection cost of Rs 216
crores
**Source: The Economic Times dated 8th April 2009
Statistics of Wealth tax **
For every rupee spent, the Government earns Rs 1.97 of wealth tax.
For every Re spent, the Government collects Rs 60 of income tax (all categories)
For every Re spent, the Government collects Rs 701 of corporate income tax
Cost of collection (Direct Taxes) in other countries:◦ Britain : 1.53%◦ Germany : 2.35%◦ Australia : 1.15%
Comparitive Statistics
Note: In Austria, Denmark, Germany, Finland,
Iceland, Spain and Luxembourg wealth tax was abolished during the last decade
The concept of Wealth tax does not exist in Belgium and Great Britain.
Global Wealth Tax Parallels*Nomenclature Country
Solidarity tax on Wealth France
Wealth tax Greece, Norway, Switzerland and Netherlands
Property tax US
Practical Issues in Wealth tax – Indian
Repatriates.
Scope of Taxation
Assessee Residential Status Assets
in
India
Debts
in
India
Assets
outside
India
Debts
outside
IndiaIndividual –
Citizen of India
Resident and ordinary
resident
Included Deductib
le
Included Deductible
Individual – any
other case
including foreign
national who is a
resident and
ordinary resident
Indian Citizens: Non
resident or not ordinary
resident
Foreign Nationals:
Resident or non resident.
Included Deductib
le
Not included Not
Deductible
HUFResident and ordinary
resident
Included Deductib
le
Included Deductible
Non resident or not ordinary
resident
Included Deductib
le
Not included Not
Deductible
CompanyResident Included Deductib
le
Included Deductible
Non Resident Included Deductib
le
Not included Not
Deductible
1% on taxable wealth in excess of Rs 30 lacs
Exemption limit of Rs 30 lacs is applicable to all category of assessees
No surcharge levy on wealth tax
No cess levy on wealth tax
Rate of Taxation
Exemption u/s 5(v) is available provided: Assessee is an individual Assessee is a citizen of India or a PIO Assessee was ordinarily residing in a
foreign country Assessee has returned to India with an
intention to permanently reside in India
Non residents returning to India
The term “ordinarily residing” has not been defined
Madras High Court in the case of Periannan vs CWT has enunciated that:◦ Ordinarily residing refers to residence of long
duration outside India ◦ A person for whom India is a permanent residence
cannot claim exemption under this section merely by travelling abroad and residing abroad for a period of one year and thereafter returning to his own country
“Ordinarily Residing” in a Foreign Country
Money Value of assets brought into India Value of assets acquired out of such money:
◦ Within one year prior to the date of return◦ Any time after the date of return
Period of Exemption:- 7 consecutive previous years beginning
from the year of return.
Assets Exempted
Kerala accounts for 20% of India’s gold consumption annually and India in turn accounts for about one-fifth of the world’s annual gold sales.
According to World Gold Council, in 2009 the consumption of gold in India was 578.5 tons. It rose to 963.1 tons (worth Rs 1,73,330 crore) in 2010, with an increase of 68 per cent.
Vital Facts
Gold in excess of 150 sovereigns Purchase of Luxury cars (Benz C Class and
above) without loans Cash in excess of Rs 50k for individual / HUF More than one self occupied property Property under construction held abroad Double taxation
Practical Issues
Non resident & International
Taxation.
Divakar Vijayasarathy & Associates
Sec 115BBD proposed for the Assessment year 2011-12 only
Dividend income from foreign subsidiaries shall be taxable @ 15% of gross dividend
No deduction is allowed
Provisions applicable only for Indian companies
Dividends not to include deemed dividend u/s 2(22)(e).
Taxation of Foreign Dividends
Divakar Vijayasarathy & Associates
Benefit applicable for only one year
Subsidiary holding need not carry voting rights.
Professional Take Aways
Divakar Vijayasarathy & Associates
Every non resident having a liaison office in India shall submit a statement of activities within 60 days from the end of the financial year in the prescribed form – Sec 285.
This amendment shall be effective 1st of June 2011.
Liaison Office Intimation
Divakar Vijayasarathy & Associates
Interest income on infrastructure debt fund, earned by a non resident, shall be taxable at 5% of the gross amount- Sec 115A.
A new section 194LB has been proposed to provide for TDS @ 5% on payments made by such funds.
Income of a notified infrastructure debt fund shall be fully exempt u/s 10(47)
Effective 1st of June 2011.
Interest on Infrastructure Debt
Divakar Vijayasarathy & Associates
It is proposed to provide that instead of the fixed variation of +-5%, the allowable variation will be such percentage as may be notified- Sec 92C.
TPO shall have the jurisdiction to determine ALP in respect of other international transactions, which are noticed by him subsequently, in the course of proceedings before him- Sec 92CA.
Transfer Pricing
Divakar Vijayasarathy & Associates
TPO shall be empowered to conduct on the spot survey and verification and exercise the powers given u/s 133A- Sec 92CA(7)
It is proposed to extend the due date for corporate assessees, to whom the provisions of transfer pricing apply, to 30th of November.(The amendment is effective from 1st of April 2011)
Transfer Pricing
Thank You