Project Report onTaxation News

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Guided by: Prof. Anil Gor

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ACKNOWLEDGEMENT

We take this opportunity to express our deep and sincere gratitude to Prof. Anil Gor for his valuable guidance and encouragement in implementing the knowledge gained through lectures in the form of a project. It is because of his support that we could synchronize the efforts in covering the manifold features of the project. We acknowledge the infrastructural support provided by the organization.

Finally we are thankful to all our members of the organization and friends who have given their full support in collecting the required and continuous help during the preparation of the project.

Table of Contents:

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NEWS-01

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01. Startups may enjoy excise duty,service tax waiver for a specified period

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Startups may enjoy excise duty, service tax waiver for a specified period

Date: 05th Feb 2015

Source: Economic Times

The union government is in the process of gift-wrapping a bonanza for startups with proposals to exempt them from service tax and excise duties for a specified period.

An inter-ministerial group is considering a one-stop registration service for all startups that will make also them eligible for government grants. The group, chaired by Jayant Sinha who is minister of state for finance, includes ministries of science and technology, corporate affairs and the department of electronics and IT. Harkesh Mittal, secretary in the department of science and technology, confirmed talks but declined to share specifics of the proposals under consideration.

Startups which register under the department of science and technology and are certified as 'bonafide' will then be eligible for tax exemptions - both service and excise-until their revenues reach a certain threshold, according to sources privy with the talks. They will also qualify to receive grants of up to 10 crore from the DST.

According to World Bank, India is currently ranked at 134 in the ease of doing business, a ranking the Modi government is aiming to change.

Nasscom has also proposed a three year moratorium to the government on quarterly regulatory filings and taxes so that India's young companies can scale up fast. Service tax exemption is a much needed proposition.

But sops should be more broad-based as majority of successful start-ups are not registered with DST affiliated incubators," said Ravi Gururaj, chairman at Nasscom Product Council.

This aggressive policy push for start-ups, in the run-up to the Union Budget 2015, is coming at a time when India is in the midst of an unprecedented entrepreneurial boom. Venture capitalists nearly doubled their investments in the country last year, putting in an all-time high of $2.1 billion in Indian startups.

The government seems eager to play its part. In the interim budget announced by finance minister Arun Jaitley in July 2014, the government announced a 10,000 crore fund for start-ups. The latest proposals under consideration, are targeted at more than just financial support, and extend to simplifying process of starting up as well as running a business.

At present, technology startups have to pay service tax at the rate of 12.36%- similar to what large corporates are charged, besides also having to pay excise and income tax.

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With the one page annual filing, tech businesses will get more time to accelerate and scale," People with knowledge of the proposals being discussed by the inter-ministerial group said, there are moves to also ease the process of shutting down failed startups. "Certified' startups will have the ability to shut down in a day, with submission of a single page form,' said one source.

Every day nearly over two startups are set up in India. Industry members estimate that for every hundred new ventures, at least eighty fail.

Currently, it takes a private limited company about 18-36 months to wind up completely. Procedure involves taking a no-objection certificate from each creditor, getting approval of all directors, including investors and submitting a court petition.

However a large number of technology startups own assets such as an intellectual property or a website, the ministerial group is now discussing new rules that will help them shut down speedily, if required.

Remarks.1. This move of the government will make it easy to start a new company and also facilitate

winding up.Charging less tax will also help fuel the growth of startups.

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News 02

Government mulls scrapping dividend tax: Date: 05th Feb 2015

Source: Economic Times

The government is considering scrapping “Dividend Distribution Tax” in its annual budget this month as part of efforts to boost investor sentiments, Bloomberg television reported on Thursday, citing unnamed sources.

Companies are liable for an additional tax on any amount distributed or paid out to shareholders. Scrapping the 15% levy could increase net payouts and boost the attractiveness of Indian stocks, which have rallied by 20% since Narendra Modi’s election triumph in May 2014 on hopes that he will bring about an investment led recovery.

In the run-up to last July’s interim budget, officials in the Modi government promised to jettison “bad taxes” including the dividend distribution tax, according to reports at the time.

A second finance ministry official said that ditching the dividend tax was one of the several demands made to the government by India’s business lobby.

The finance ministry is currently in the lockdown mode as finance minister Arun Jaitley prepares to unveil his first full year budget on Feb 28.

Remarks.1. Scrapping the dividend distribution tax would make Indian stocks lucrative to investors.

News 03

Government changes excise duty structure on branded diesel

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The government has changed the excise duty structure on branded or premium diesel, shifting from fixed rates to a combination of ad valorem and fixed duty.

Branded diesel will now be charged at 14 per cent of refinery gate price of the fuel plus Rs 5 per litre or Rs 10.25, whichever is lower, according to notification issued by Department of Revenue in the Finance Ministry. The duty shift will not result in any change in retail price.

The fuel, which is sold under brands 'XtraMile' by Indian Oil Corp (IOC), 'Hi speed Diesel' by Bharat Petroleum Corp Ltd (BPCL) and 'Diesel Super' and 'Turbo Jet' by Hindustan Petroleum Corp Ltd (HPCL), till now attracted a total excise duty of Rs 10.25 per litre.

The specific excise duty rates for unbranded or normal diesel as well as unbranded and branded petrol have not been changed and they will continue to be charged at specific rates.

Originally, excise duty on petrol and diesel was ad valorem. This was changed into specific rates as with every increase or decrease diesel in prices, the incidence of duty also increased or decreased, thereby impacting the pump rates.

With global oil prices slumping to near six year low of about USD 44 per barrel, the government has raised excise duty on both petrol and diesel on four occasions since November to mop up an additional Rs 18,000-20,000 crore this fiscal without impacting the consumer.

Currently, unbranded or normal petrol is charged with a total of Rs 16.95 per litre. This is made up of basic cenvat duty of Rs 8.95 a litre plus Rs 6 special additional excise duty and Rs 2 per litre additional excise duty which goes towards building highways.

Branded petrol, which is sold under brands at 'Premium' by IOC, 'Power' by HPCL and 'Speed' by BPCL, is charged with a total excise duty of Rs 18.10 per litre (Rs 10.10 plus Rs 6 plus Rs 2)

Similarly, unbranded diesel today commands an excise duty of Rs 9.96 per litre (Rs 7.76 basic excise and Rs 2 additional excise that goes towards building highways).

The same on branded diesel is made up of Rs. 10.25 a litre plus Rs 2 additional excise rate.

Remarks.1. Change in the excise duty on Branded Diesel would not affect the consumers.2. It will help reduce the fiscal deficit by 18 to 20 thousand cr.

News 04

GST: 1% non-creditable tax on manufacturers miffs industry

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Date- 10th Feb

Source- Business Standard

An additional one per cent tax on inter-state supply of goods in the constitutional amendment

Bill on a goods and services tax (GST) has left industry worried.

It has been proposed proceeds from the tax will go to states in which the supply originates. The

tax is aimed at wooing states such as Gujarat and Maharashtra, which are miffed at destination-

based GST, saying it would work against manufacturing states .Market players say this

provision defeats the purpose of a national GST, as it will lead to supply-chain inefficiencies.

The additional tax will remain non-creditable against the GST and will constitute additional

revenues to producing states, over and above the GST in destination states.

“This is going to be a bombshell for industry and will have a negative impact on the common

market of India. More, it will be a blow to domestic manufacturers. Rather than promoting ‘Make

in India’, it might become a tombstone for manufacturers in India,” said a market player.

Sources say industry is planning to send a formal representation

against this provision to the government. It is also seeking it be

made a part of the discussion on framing GST regulations and

the Centre engage in dialogue with it.

Another market player said the proposal would require

restructuring of business and supply chains. The chain, already

hit by various deficiencies, would become more complex, he added. Complexity would result

from the fact that supply of goods from a company’s office in a particular state to a different

office in another state will also be taxed at one per cent.

Some experts term this a necessary evil.

. While the intent is to restrict the tax to two years to get states on board, there is concern

because of the way it is worded in the constitution amendment Bill. The industry is pegging this

tax as a distortion and if the center wants to adequately compensate the states for any loss in

revenue then the GST rate should be kept high, they argue.

Remarks.1. It will result into complexities because interstate transfer of goods a same company will also be taxed at 1%.

2. This Provision defeats the very purpose of GST.

News 05

Exemption in lieu of 80C tax benefits

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Date-4th Feb

Source-Financial Express

In a bold move to simplify tax laws, the finance ministry is considering a plan to replace the tax

benefits given to individuals for investing in specified savings instruments such as life insurance

and provident funds with an upfront higher basic tax exemption limit.

If the proposal makes it into Union Budget for 2015-16, the current R1.5 lakh deduction from the

taxable income of individuals for investments in specified savings instruments under Section

80C of the Income Tax Act would be discontinued. Instead, the basic exemption limit would be

correspondingly enhanced.

That is, individual’s income up to R4 lakh, or thereabouts, could be exempt from tax, up from Rs

2.5 lakh currently.

Most of the complexities that exist in the Income Tax Act is on account of using tax policy as a

tool for implementing certain genuine benefits and reliefs that the state wants to extend to

taxpayers. These benefits could rather be given as upfront exemptions from taxation or outside

the tax policy itself for the sake of simplicity, explained a source privy to the discussions.

Also, the ministry reckons that the stated purpose of Section 80C, that is, to encourage

household savings, is not efficiently achieved in the current model. It is practically difficult for the

income tax department to verify that the investments are actually made by those seeking the

deduction, especially those not covered

under the tax-deduction-at-source (TDS)

net.

As per the latest data, household financial

savings stood at R12.8 lakh crore in

2013-14, accounting for 35% of the gross

household savings of R20.65 lakh crore.

Recent years saw household savings rate

dipping.

Sources, however, believe that the

current system allows individuals to avail

of the Section 80C benefit without having made the required investments.

Most of the tax returns by individuals are processed by what is called a ‘summary assessment’,

under which an adjustment in the reported income is made only in cases of arithmetic error or of

a wrong claim that is apparent from the return filed. Officials do not ask questions or insist on

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proof of investment while processing returns. Only in cases of ‘scrutiny assessment’ and

‘assessment of income that has earlier escaped assessment’, which are done in very few cases,

more information or evidence is sought to ensure that the reported income is correct.

Even in the case of salaried individuals, where the employer may insist on proof of investments,

the tax authorities do not. Besides, if a salaried individual wrongly claims in his return that

Section 80C investments have been made, the TDS by the employer and paid to the

department is refunded by the tax authorities without asking any questions. In the case of self-

employed, there is no check either by the employer or the taxman.

So the ministry feels that any individual who is actually interested in saving would anyway do it

and there is really no need to incentivize the same through the tax policy.

Savings entitled to tax benefit under Section 80C include payments towards life insurance,

deferred annuity, provident funds, National Savings Certificates, unit-linked investment plans of

LIC Mutual Fund, pension funds set up by

mutual funds, equity-linked savings plans,

deposits with National Housing Bank and

tuition free paid for education of children.

Remarks

News 06Tax net: Foreign portfolio investors caught in a bind

The tax department has asked a number of foreign portfolio investors (FPIs) to make available

their profit-and-loss (P&L) statements and balance sheets, though they are not required to do so

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in the normal course of filing returns.

Typically, such statements are filed by companies.

The department's move is being seen by tax consultants as part of a larger push to levy

Minimum Alternative Tax (MAT) on FPIs. Usually, the tax is applicable only to companies.The

department has sought the financial statements of at least 200 FPIs structured as corporate

entities. They had been asked to re-file their returns for the financial year ended March 2014,

said a person familiar with the matter. The tax department levies MAT on companies to ensure

a minimum tax payment by those earning substantial incomes but escaping taxation due to

various exemptions. This levy works out to about 20 per cent of profits. Experts say if FPIs are

to furnish P&L statements, the tax department can calculate the MAT they could charge FPIs

structured as corporate entities.

The number of FPIs asked to explain why MAT should not be levied on them has gone up from

a handful in September to at least 50, according to two people familiar with the matter. They

said foreign funds had filed representations in this regard and were waiting for further action

from the tax department.

Experts say effectively, a MAT regime acts against the zero per cent long-term capital gains tax

and 15 per cent short-term capital gains tax said to be applicable now. If MAT were to be

applicable, the effective rate of stock market taxation becomes 20 per cent. This would mean

such foreign investors could end up paying higher tax on stock market transactions than

domestic investors.

Depository data show foreign investors held a total of Rs 19.03 lakh crore of equity assets and

an additional Rs 2.67 lakh crore of debt assets at the end of 2014. A tax official confirmed

sending notices in this regard to FPIs, without divulging the number of FPIs who had been sent

such notices.

Remarks

1. This would mean that foreign investors could end up paying higher tax on stock

market transactions than domestic investors.

2. It will act as a deterrant for foreign portfolio investors to invest in indian capital

markets.

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News 07MAT revision likely in Budget

In a move aimed at giving a push to its ‘Make in India’ programm, the government could

introduce in the coming Union Budget a differential minimum alternate tax (MAT) rate for certain

segments of domestic manufacturing.According to those privy to the development, the Budget

makers are looking to give an impetus to Indian manufacturers, particularly the micro, small and

medium enterprises (MSMEs), special economic zones (SEZs) and those in the infrastructure

sector.

The government had introduced MAT to ensure no profit-earning company used exemptions

and incentives to avoid tax liability. The current rate for MAT is 18.5 per cent; the effective rate

goes up to 20 per cent after including surchange and cess. The rate for corporation tax, 30 per

cent at present, nearly touches 33 per cent with cess and surcharge.

Though the differential MAT has not yet been finalised, it is believed to be set in the range of

five per cent to 10 per cent.

Looking at ways to incentivise and promote domestic manufacturing, the commerce & industry

ministry had earlier this year made a pitch for lowering of MAT for domestic manufacturing. So

far, there is no specific provision in the income-tax Act to incentivise domestic manufacturing,

though certain relief is given to SEZs. The pitch is for restoring relief for SEZs and providing

SMEs with some leeway.

MAT credit can be carried forward for only 10 years — almost corresponding with the holiday

period for SEZs. This 10-year restriction, coupled with the way MAT set off is allowed under the

existing tax provisions, results in permanent loss of a significant portion of the MAT paid.

The proposal to impose MAT on book profits — of both SEZ developers and units in these

enclaves —was announced in Budget 2011-12 by the then finance minister, Pranab Mukherjee.

Besides, DDT at almost 20 per cent was also imposed for dividend distributed to shareholders.

MAT came into effect from April 2012, amid severe protest from SEZ developers and units. It

was introduced through a proposal in the Finance Act, even as the SEZ Act specifically

mentioned a stipulated tax holiday be given to these zones.

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Another measure specific to manufacturing companies, pressed for by industry and being

considered by the government, is allowing deduction of investment allowance for MAT

computation purposes.

In the previous Union Budget, the government had reduced the threshold for claiming the 15 per

cent tax deduction of the actual cost of new plant and machinery by manufacturing companies

from Rs 100 core to Rs 25 core. This provided a fillip to the manufacturing sector and acted as a

catalyst for capital infusion. The investment allowance could be permitted as an adjustment for

MAT purposes.

Remarks

News 08Union Budget: Fix realistic tax targets

Date-10th Feb

Source-Financial Express

In the last few years, the finance ministry has been projecting higher tax revenue increases in the Budget to keep the fiscal deficit target low. What this has meant, in effect, is the government going for expenditure compression in a big way to make up for the gap between the actual tax realisation and the estimates. This puts unnecessary pressure on the tax departments.

The mid-year review of the finance ministry pointed out that the Budget overestimated the tax revenue by ‘R1.05 lakh crore or 0.84% of the likely FY15 GDP, which is broadly the shortfall that now looms ahead’. The net direct tax collection growth during the April-December period was

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just 7.4% as compared to the gross direct tax realisation target of 16%. Similarly, the growth in indirect taxes in this period grew by 6.7% only while the target is 26%.

The estimation of the tax mop-up growth target for FY16—to be announced in the Budget on February 28—therefore, will be keenly watched, especially because the government has already planned to raise the tax-to-GDP ratio in the next two years to 11.2% from 10% in FY14. This would in itself require an average tax growth of 17.7% in the next two years, on top of the 20% rise projected in FY15 over actual collections in FY14.

The new GDP series doesn’t alter the situation. The Tax Administration Reforms Commission (TARC) is slated to suggest a revenue forecasting model before the Budget, but it would be probably too late in the day to take note of that for FY16 projections.

Remarks

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News 09

Tax relief for individuals and companies likely in Budget 2015

The 2015-16 Budget is likely to include major relief for individual taxpayers to boost savings as well as for companies to encourage them to invest in the country. The contours of the package are still being worked out but it is likely that tax slabs or exemptions will be reworked for individuals and the corporation tax rate may be rejigged, officials said. The corporation tax rate now stands at 30 per cent and the rate has remained unchanged for the last seven years, tax experts said. Including surcharge and cess, the effective rate is around 33 per cent. The surcharge on corporation tax was reduced last year from 10 per cent to 5 per cent. "There are several companies who are relocating their operations to other countries because of the tax burden. Therefore, there is a need to provide some relief. Individual taxpayers also need

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relief," said an official who did not wish to be identified. The government is keen to restart the investment cycle and deepen the manufacturi ng sector as part of its Make in India campaign. Therefore, it would prefer to have a predictable and easy tax structure that encourages firms to invest in the country. 

"The final call will be taken by the PM and the FM," the official said. The Narendra Modi government, in its first Budget in July last year, had raised the personal income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh. For senior citizens, the limit was raised from Rs 2.5 lakh to Rs 3 lakh. Both Modi and finance minister Arun Jaitley have said that the government believes in a low tax economy and does not want to burden the people with high taxes. But a tight fiscal situation has prevented them from carrying out any big bang tax relief. Jaitley has earlier said that he is against reducing exemptions to widen the tax net and that he would like to expand the ambit but the tight fiscal situation was making his task difficult.

Officials say that the revenue department is concerned that if major tweaking of the tax slabs is done then a large chunk of taxpayers may go out of the net. "This will have to be a political call," the official said, adding that there would be no significant dent to revenue receipts even if a few thousand tax payers go out of the net. Tax experts backed the idea of relief for individuals and companies. 

Reforming the tax administration and the taxation structure has been a priority for the government as it has moved to heal the wounds from the stinging impact of retrospective taxation. Friendly for tax payers and has laid down guidelines for the department's interaction with companies and individual taxpayers. 

Remarks

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