CBDT issues new guidelines for compounding of offences under Direct Tax Laws, 2014

Recently, CBDT has issued new guidelines for or Compounding of Offences under Direct Tax Laws, 2014 on 23rd Dec., 2014 vide F.No. 285/35/2013 IT(Inv)/108.

In the light of various references received from the field formation from time to time, existing guidelines on compounding of offences under Income-tax Act, 1961 (the Act) have been reviewed and in supersession of the same, including the guidelines issued vide F.No. 285/90/2008-IT(Inv.)/12 dated 16 thMay 2008, the following guidelines are issued for compliance by all concerned. 

These guidelines shall come into effect from 01.01.2015 and shall be applicable to all applications for compounding received on or after the aforesaid date. The applications received before 01.01.2015 shall continue to be dealt with in accordance with the guidelines dated 16.05.2008. 

Compounding Provision:

Section 279(2) of the Act provides that any offence under chapter XXII of the Act may, either before or after the institution of proceedings, be compounded by the CCIT/DGIT. As per section 2(15A) and 2(21) of the Act, Chief Commissioner of Income Tax includes Principal CCIT and Director General of Income tax includes Principal DGIT. 

Compounding is not a matter of right:

Compounding of offences is not a matter of right. However, offences may be compounded by the competent authority on his satisfaction of the eligibility conditions prescribed in these guidelines keeping in view factors such as conduct of the person; nature and magnitude of the offence and facts and circumstances of each case.

Applicability of these guidelines to prosecutions under IPC:

Prosecution instituted under Indian Penal Code, if any, cannot be compounded as per these guidelines. However, section 321 of Criminal Procedure Code, 1973 provides for withdrawal of such prosecutions.

Classification of Offences:

The offences under Chapter-XXII of the Act are classified into two parts (Category 'A' and Category 13') for the limited purpose of compounding of the offences.

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Budget needs 10 tax issues on Indirect Taxes & Direct Taxes.

The final budget for 2014-15 is expected to be presented in the first week of July. ET takes a look at the tax issues the budget needs to address:

INDIRECT TAXES

Goods and services tax (GST) 

BJP has indicated indirect tax reform will be its priority.

What can be expected

A road map to roll out the big indirect tax reform A strong statement promising to address all concerns of states.

A strong statement promising to address all concerns of states

Reduction in CST rate

Central sales tax was to be abolished with introduction of GST.

What can be expected

CST rate could be lowered to 1% from 2% along with the announcement of GST.

Measures to reduce litigation 

Over Rs 1 lakh crore stuck in indirect tax litigation.

What can be expected

One-time settlement scheme to end previous backlog A forward looking plan to reduce litigation.

A forward looking plan to reduce litigation

Cenvat credit reforms 

Current regime is complex and limited. It adds to cost and administrative burden.

What can be expected

Recommendations of MK Gupta committee available Some measures can be expected based on the recommendations.

Some measures can be expected based on the recommendations

Stimulus through excise cuts 

Industrial and manufacturing revival tops government agenda.

What can be expected

Selective sops to stimulate demand till economy improves.

DIRECT TAXES

Retrospective tax FM has opposed amendments with retrospective affect but has not said on specific amendment.

What can be expected

The budget could clarify that amendment would have prospective affect Apart from Vodafone, it would benefit other MNCs as well.

Direct taxes code The code is ready and can be passed quickly.

What can be expected

Some elements of the DTC could be included in the budget.

Mauritius tax treaty could be clarified.

Time-bound incentives for corporates to invest more.

Big thrust to infrastructure sector.

Threshold limit for income tax

BJP leader Yashwant Sinha had favoured big relief to taxpayers through slab recast in his standing committee report on direct taxes code.

What can be expected

Fiscal condition rules out a big relaxation but lowest slabs could be provided relief.

Income up to Rs 5 lakh could be made tax exempt.

The super-rich tax could continue.

Steps to stimulate savings

Financial savings have taken a big knock in recent years, contributing to high interest rates.

Household financial savings

What can be expected

The Rs 1 lakh threshold for Section 80C benefit could be raised.

Rebate for infrastructure investments could be brought back.

Sops for housing

onstruction and housing sector has been sluggish for a while.

What can be expected

Tax incentive for the sector could be raised for a fixed period.

Source: www.economictimes.indiatimes.com

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Latest amendment in Proposed Direct Taxes Code 2013.

The Finance Minister, in his speech on Interim Budget 2014-15, made the following observation on Direct Taxes Code (DTC):-

"Revenues are of paramount importance. The best source of revenue is taxes and for that we need modern tax laws. I am disappointed that we have not yet been able to introduce GST. I leave it to you to answer the question, who blocked the GST when an agreement on the game-changing tax reform was around the corner? We have also got ready a Direct Taxes Code that will serve us for at least the next twenty years. I intend to place it on the website for a public discussion without partisanship or acrimony. I appeal to all political parties to resolve to pass the GST laws and the DTC in 2014-15."

Accordingly, the DTC, 2013 along with DTC Bill, 2010 is placed on http://incometaxindia.gov.in. A write-up on the significant changes in the proposed DTC, 2013 is also placed on the website. The report of the Standing Committee on Finance is available at the http://loksabha.nic.in. Comments, if any, on proposed DTC, 2013 may be sent on email ID: dtc13-dor@nic.in.

Download Proposed Direct Taxes Code 2013 by latest amendment.

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Significant changes in the proposed Direct Taxes Code, 2013

The Income-tax Act was passed in 1961 and has been amended every year through the Finance Act. The Wealth-tax Act was passed in 1957 and has also been amended many times. Numerous amendments have rendered the two Acts incomprehensible to the average taxpayers. Besides, there have been several policy changes due to change in economic environment, complexity in the market, increasing sophistication of commerce, and development of information technology. There has also been a multitude of judgments (at times conflicting) rendered by the courts at different levels. This necessitated drafting of a Code to consolidate and amend the law relating to all direct taxes. Accordingly, a draft Code along with a concept paper was released on 12th August, 2009 inviting suggestions from the public. The Code sought to consolidate and amend the law relating to all direct taxes so as to establish an economically efficient, effective and equitable direct tax system which would facilitate voluntary compliance and also reduce the scope for disputes and minimize litigation.

Having considered the suggestions received from various stake holders a revised discussion paper was released on 15th June, 2010. Thereafter, taking into account the suggestions which were accepted by the Government, the Direct Taxes Code Bill, 2010 was introduced in the Lok Sabha on 30th August, 2010. The Bill was referred to the Standing Committee on Finance (SCF) on 9th September, 2010 for examination and report thereon. The SCF presented its report to the Speaker, Lok Sabha in March, 2012. The report contains general recommendations in Part-I and deals with specific clause wise recommendations in Part-II. A large number of recommendations of the SCF along with other suggestions which were forwarded at the examination stage have been accepted by the Government. Further, the Kelkar Committee in its report on ‘Road Map for fiscal consolidation’ submitted to the Government in September, 2012 made the following observations on the Bill:-

“The Direct Taxes Code Bill, 2010 which intends to revamp the law relating to direct taxes is likely to result in considerable unacceptable losses on a continuing basis. Given the low tax-GDP ratio and the existing fiscal crisis, there is absolutely no fiscal space for such large revenue loss. Therefore, the Direct Taxes Code Bill, 2010 should be comprehensively reviewed before it is enacted into law for implementation.”

Since the Direct Taxes Code Bill, 2010 was introduced in the Parliament, amendments were carried out in the Income-tax Act, 1961 and the Wealth-tax Act, 1957 through Finance Acts, 2011, 2012 & 2013. These amendments were consistent with the policy laid down in the DTC Bill, 2010. Incorporating these amendments in the DTC Bill, 2010 would require a large number of official amendments making the Bill incomprehensible and the legislative process cumbersome. Hence, it was decided to revise the Direct Taxes Code incorporating all the amendments and presenting it as a fresh Bill. Accordingly, a new revised Direct Taxes Code was drafted.

Download Proposed Direct Taxes Code, 2013 with significant Changes

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Latest e-Book on Amendment of Direct Taxes, 2013

The Finance Minister had announced to implemented Direct Tax in the Budget. In this regard continuously amendments are comes for better Direct Tax Code. There was heated discussion on the various provisions of the Bill which included over 30 amendments in various sections of the Income-tax Act with retrospective effect. There was lot of protest in India and abroad as most of these amendments would affect non-residents and will have adverse effect on global trade. In-spite of this protest, the Government could manage to get through the legislation with some changes. The Finance Act, 2012, containing 119 sections relating to Direct Taxes is now passed by both Houses of the Parliament and received the assent of the President on 28-5-2012 and now latest amendment of Direct Tax, 2013 e-book released by Finance Department which is as under with some major amendments

Income Tax:

• Relief in income tax
• Rates of income tax
• Surcharge on income tax
• Education cess

Tax Deduction and Collection at Source (TDS and TCS):

• Section 193
• Section 194J — TDS from fees from professional or technical services
• Section 194LA
• Section 194LC
• Section 201 — Failure to deduct tax at source
• Section 206C — Tax Collection at Source (TCS)
• No Advance tax payable by senior citizens u/s.207

Exemptions and deductions :

• Charitable trust
• Section 10(10D) — Deduction of life insurance premium
• Section 10(23FB) — Venture Capital Company (VCC) and Venture Capital Funds (VCF)
• Section 10(23BBH)
• Section 10(48)
• Section 40(a)(ia)
• Section 80C
• Section 80CCG etc.

Download Direct Taxes, 2013 e-Book

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Significant changes in the proposed Direct Taxes Code, 2013

The Income-tax Act was passed in 1961 and has been amended every year through the Finance Act. The Wealth-tax Act was passed in 1957 and has also been amended many times. Numerous amendments have rendered the two Acts incomprehensible to the average taxpayers. Besides, there have been several policy changes due to change in economic environment, complexity in the market, increasing sophistication of commerce, and development of information technology. There has also been a multitude of judgments (at times conflicting) rendered by the courts at different levels. This necessitated drafting of a Code to consolidate and amend the law relating to all direct taxes. Accordingly, a draft Code along with a concept paper was released on 12th August, 2009 inviting suggestions from the public. The Code sought to consolidate and amend the law relating to all direct taxes so as to establish an economically efficient, effective and equitable direct tax system which would facilitate voluntary compliance and also reduce the scope for disputes and minimize litigation.

Having considered the suggestions received from various stake holders a revised discussion paper was released on 15th June, 2010. Thereafter, taking into account the suggestions which were accepted by the Government, the Direct Taxes Code Bill, 2010 was introduced in the Lok Sabha on 30th August, 2010. The Bill was referred to the Standing Committee on Finance (SCF) on 9th September, 2010 for examination and report thereon. The SCF presented its report to the Speaker, Lok Sabha in March, 2012. The report contains general recommendations in Part-I and deals with specific clause wise recommendations in Part-II. A large number of recommendations of the SCF along with other suggestions which were forwarded at the examination stage have been accepted by the Government. Further, the Kelkar Committee in its report on ‘Road Map for fiscal consolidation’ submitted to the Government in September, 2012 made the following observations on the Bill:-

“The Direct Taxes Code Bill, 2010 which intends to revamp the law relating to direct taxes is likely to result in considerable unacceptable losses on a continuing basis. Given the low tax-GDP ratio and the existing fiscal crisis, there is absolutely no fiscal space for such large revenue loss. Therefore, the Direct Taxes Code Bill, 2010 should be comprehensively reviewed before it is enacted into law for implementation.”

Since the Direct Taxes Code Bill, 2010 was introduced in the Parliament, amendments were carried out in the Income-tax Act, 1961 and the Wealth-tax Act, 1957 through Finance Acts, 2011, 2012 & 2013. These amendments were consistent with the policy laid down in the DTC Bill, 2010. Incorporating these amendments in the DTC Bill, 2010 would require a large number of official amendments making the Bill incomprehensible and the legislative process cumbersome. Hence, it was decided to revise the Direct Taxes Code incorporating all the amendments and presenting it as a fresh Bill. Accordingly, a new revised Direct Taxes Code was drafted.

Recommendations of SCF which are proposed to be accepted

Out of 190 recommendations made by the SCF, 153 are proposed to be accepted wholly or with partial modifications. In addition to the recommendations forming part of the report, 61 suggestions forwarded by the SCF at the discussion stage have also been accepted for incorporation in the revised Code. Some of the recommendations of the SCF which are proposed to be accepted are as under:-

• Simplicity and comprehensibility of both structure and content thereby making the statute more user friendly.
• Ensuring tax buoyancy by tapping high capacity/income and evasion prone segments.
• Re-orienting departmental resources towards high-capacity as well as avoidance/evasion prone categories/sectors.
• Modernisation and computerisation of all tax operations; equipping the department with men and material to carry out the tasks assigned.
• Moderation in tax rates for individual taxpayers with emphasis on voluntary compliance.
• Deductions for individual taxpayers to be focused on long term needs like social security.
• The age for senior citizens may be relaxed from 65 years to 60 years.
• Area base incentives may be considered on investment linked basis.
• However, the general principle should be that all incomes and profits are to be taxed and exemptions, if any, should be treated as a dynamic variable, by ensuring that each exemption serves an economic purpose. (ix) Smooth transition to investment linked incentives with focused coverage.
• Maintaining uniformity in ‘grandfathering’ provisions so that the available benefits for different categories under the existing Income-tax Act are phased out in a uniform and non-discriminatory manner ensuring smooth transition to DTC provisions.
• The definition of the term ‘place of effective management’ for the purposes of determination of residency of companies may be modified as the definition in the DTC Bill, 2010 is not very clear and provides room for uncertainty.
• Clause 5(1)(d) read with Clause 5(4)(g) and Clause 5(6) of DTC Bill, 2010 seek to tax income of a non-resident arising from indirect transfer of capital assets situated in India. The Committee recommended that exemption should be provided for transfer of small share holdings as application of these provisions in such cases will cause hardship.
• For the purposes of taxation of income under the head ‘Income from house property' a distinction should be made between commercial and non-commercial renting of properties.  The concept of unrealised rent should also be built in as is the position under the existing Income-Tax Act.
• For the purposes of deduction in respect of interest on loan taken for self occupied house property, the loan given by the employer should also qualify for this concession.
• Tax neutrality may be provided on conversion of a partnership firm under the Partnership Act, 1932 into a limited liability partnership or a company.
• Where compensation is received on compulsory acquisition of an investment asset, the period for acquiring the new asset for the purpose of relief from capital gains should be reckoned from the date of receipt of such compensation.
• With a view to provide smooth transition from IT Act to Direct Taxes Code, provision be made for treatment of losses remaining to be carried forward and set off as per the provisions of the existing Income-tax Act on the date on which DTC comes into effect.
• The non-profit organisation may be given an option to adopt either the cash system or accrual system of accounting for computing their income under the Code.
• The Income-tax Act provides for carry forward of tax paid on book profit (MAT credit). A provision may be made in the DTC Bill for carry forward of unutilised MAT credit under the IT Act, on the date on which the DTC comes into force.
• The General Anti Avoidance Rules may be reviewed to bring more clarity and precision to the scope of the provisions. The onus of proof should rest on the tax authority invoking GAAR. The constitution of the panel approving GAAR should be reviewed. The taxpayers may also be permitted to obtain an advance ruling to determine whether a transaction would attract GAAR.

Recommendations of the SCF which have not been incorporated in the proposed DTC, 2013

The recommendations of the SCF which were not in harmony with the broad taxation policy of the Government have not been incorporated in the revised Code. Some of the main recommendations of the SCF which have not been incorporated in the revised Code are mentioned below along with the reasons for their non-acceptance:-

• Tax slab for Personal Income Tax (PIT): SCF has recommended revised tax slabs as (a) 0-3 lakhs – Nil; (b) 3-10 lakh – 10%; (c) 10-20 lakh – 20%; (d) beyond 20 lakh – 30%: The recommendation is not acceptable as it will result in huge revenue loss. The total revenue loss on account of recommended changes in PIT slabs and removal of cess works out to Rs. 60,000 crore approximately.
• The rate of tax for life insurance companies may be kept at 15% instead of the proposed 30%: Under the Income-tax Act, tax on a life insurance company is levied at the rate of 12.5% of the surplus generated in the profit and loss account of the company based on actuarial valuation. In the Code, the tax base for a Life Insurance Company is limited to the surplus generated for the company in the shareholders account while the surplus determined in the policyholders’ account (technical account) is not taxable. Therefore, rate of tax on such companies is aligned with that applicable to other companies, that is 30 per cent.
• Exemption limit to be linked to the consumer price index: It is not practicable to link exemption limit to the consumer price index for a number of reasons. First, it is not clear why the Consumer Price Index should be the base and not the Wholesale Price Index. Further complications may arise if the base of the index or the commodity basket changes. Second, it would lead to changes which are not multiples of whole numbers. Third, indexing the slabs to inflation index is not a comprehensive approach as the slab structure is dependent on a number of factors including other reliefs given to a taxpayer, potential revenue loss to the Government, number of taxpayers who would go out of the tax net etc.
• Abolition of Securities Transaction Tax (STT): The recommendation is not acceptable as STT is required to regulate day trading. Further, the rate of STT has already been reduced significantly by Finance Act, 2013.
• Levy of Dividend Distribution Tax on policy holder’s investments may negatively impact the insurance industry: With a view to provide parity in treatment of insurance products and mutual fund products, the Code proposes to levy Income Distribution Tax on equity linked insurance products on the lines of equity oriented mutual funds. For a life insurance company, only the surplus determined in the shareholder account would be taxed. This will benefit the policy holders as it would leave more money in the policy holder’s account. Further, in respect of life insurance products, that is, where the premium paid or payable for any of the years does not exceed 10% of the capital sum assured, any amount including bonus will not be subjected to tax. Besides, pure life insurance products are also outside the tax ambit.
• Deduction for CSR expenditure in backward regions and districts: The CSR expenditure cannot be allowed as a business deduction as it is an application of income. Allowing deduction for CSR expenditure would imply that the government would be contributing one third of this expenditure as revenue foregone.

Other significant changes in the Code

Taking into account, the report of the SCF and the amendments carried out in the Income-tax Act, 1961 and the Wealth-tax Act, 1957 which are consistent with the policy laid down in the Bill, the revised Code has been drafted. While drafting the revised Code, a comprehensive review of the provisions of DTC Bill, 2010 was also carried out in the light of the observations made by the Kelkar Committee in its report on ‘Road Map for fiscal consolidation’. Some of the other changes in the revised Code, which are based on a comprehensive review of the DTC Bill, 2010 and reflect the broad policy of the Government, are as under:-

• Taxation of ‘Income from house property’: The income from a house property, which is not used for business or commercial purposes, will be taxed under the head ‘income from house property’. The income from house property shall be the gross rent as reduced by the specified deductions. The gross rent shall be higher of the contractual rent or the presumptive rent. The presumptive rent shall be the annual value or rental value (without giving any deduction) fixed by the local authority for the purposes of levy of property tax. In a case where no such value is fixed by the local authority, the presumptive rent shall be the amount for which the property might reasonably be expected to be let from year to year.
• Change in base of Wealth-tax: The DTC Bill, 2010 captured only unproductive assets for levy of wealth-tax. This substantially reduced the base for wealth-tax. To keep the base wide, the revised Code captures all assets for wealth-tax, whether physical or financial, thereby removing the distinction between physical and financial assets, which discriminated against those taxpayers who are conservative and put their money in physical assets. Wealth-tax is proposed to be levied on individuals, HUFs and private discretionary trusts at the rate of 0.25%. The threshold for levy of wealth-tax in the case of individual and HUF shall be Rs.50 crores.
• Additional tax @10 per cent on recipient of dividend (liable to Dividend Distribution Tax) exceeding one crore rupees: Under the Income-tax Act as well as in the DTC Bill, 2010, the dividend distribution tax is to be levied at the rate of 15%. This favours high net worth taxpayers who pay only a fraction of their earnings as tax on their investments in the capital market. The draft DTC proposes to remove this anomaly by levy of 10% additional tax on the resident recipient if the total dividend in his hand exceeds Rs.1 crore.
• Rationalisation of provisions related to non-profit organisations: The provisions for taxation of non-profit organisations (NPO) has been rationalised by taxing their surplus at a concessional rate of 15%, allowing basic exemption limit of Rs.1 lakh and permitting all capital expenditure as a revenue outgoing. The draft Code does not provide for specific modes of investments. An NPO would be free to make its investments, other than the limited prohibited modes of investments. Consequently, specific deduction for accumulation and the provision for carry forward of deficit are proposed to be removed.
• Settlement Commission: Settlement Commission has not achieved the intended purpose of early settlement of cases and additional revenue realisation. At the same time, the backlog of cases has reduced the efficacy of search and survey actions. Accordingly, the draft Code does not provide for the machinery of Settlement Commission.
• Weighted deduction for scientific research: DTC Bill, 2010 provides for weighted deduction of 175% to the donor on any donation made by it to the specified institutions to be utilised by them in scientific research. Weighted deduction of 200% is also provided for in-house scientific research. Since, the weighted deduction reduces the actual expenditure on research and there is significant potential for its misuse, the revised Code provides for weighted deduction of 150% for in-house scientific research and 125% to the donor on any donation made by it to the specified institutions.
• 35 per cent tax rate for individual/ HUF having income exceeding Rs. 10 crore: With a view to maintain overall progressivity in levy of income-tax, the revised Code provides for a fourth slab for individuals, HUFs and artificial juridical persons. In their case if the total income exceeds Rs.10 crore, it is proposed to be taxed at the rate of 35%.
• Ring-fencing of losses from business availing investment linked incentive: The policy of the Government has been to broaden the tax base and the strategy for broadening the base essentially comprises of three elements (i) to minimize exemptions as they erode the tax base (ii) to reduce the number of ambiguities in the law, and (iii) checking of erosion of tax base through tax evasion. Accordingly, the profit linked and area based deductions were replaced by investment linked deductions for businesses specified in the Eleventh, Twelfth and Thirteenth Schedules of the DTC Bill, 2010. The basic principle of investment linked incentive is that the taxes are payable by a business after it recoups its capital investment. However, to protect the tax base it is necessary to ring fence losses from such businesses, otherwise profits of even the existing businesses can be potentially wiped out. Accordingly, the revised Code provides for ring fencing of losses from specified businesses. However, in the case of business re-organisation, where there is unabsorbed loss in the years preceeding the re-organisation, such loss will be allowed to the successor in respect of such business.
• Taxation of indirect transfer of assets: The DTC Bill, 2010 provides for a 50% threshold of global assets to be located in India for taxation of income from indirect transfer in India. This threshold is too high. There could be a situation that a company has 33.33% assets in three countries but it will not get taxed anywhere. Accordingly, the revised Code provides for a threshold of 20% of global assets to be located in India for taxation of income from indirect transfer in India. Besides, exemption is provided for transfer of small share holdings (upto 5%) outside India.

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What are our Confusing Tax Codes ?

OUR CONFUSING TAX CODE

Sample this. If you want to participate in an initial public offering ( IPO), you will be called a retail investor only if you invest up to Rs. 2 lakh. At the same time, a retail investor is someone who invests up to Rs. 10 lakh in a tax- free bond issuance. In the case of mutual funds, a retail investor puts in up to Rs. 5 lakh in a scheme. Similarly, banks protect or insure deposit accounts for up to Rs. 1 lakh. And, when the government has proposed to secure company deposit holders, they plan to protect such investors for only up to Rs. 20,000, irrespective of the type of investor. Clearly, the definition of a retail investor is unclear across the financial services sector. So are many norms. At least, retail investors are confused about it. Globally, there isnt much of adifference. For instance, the US Federal Deposit Insurance Corporation insures deposit accounts for up to $ 250,000 for each deposit owner category. When it comes to investment in stocks, there is no such limit for retail investors. Till sometime earlier, there were two different ages defined for senior citizens. While an individual retired from work by 60, he could get the advantage of a higher exemption limit under the Income Tax Act only after the age of 65. This was changed only in 2011. There are many other anomalies, especially in our tax system, that can be confusing for investors. For instance, most individual investors believe capital gains on equity investments can be tax- free only when invested in equity- linked saving schemes (ELSS), a mutual fund category. Whereas, if you book capital gains on investments in equities (both other equity fund categories and stocks) that youve held for more than a year, the gains are tax- free. “This is why you see investors buying an ELSS scheme in the last quarter of every year, when their portfolio might not require so many of ELSS schemes,” says chartered accountant and financial planner Anirudh Hatwalne. It’s just that the product is a taxsaving one under Section 80C of the Income Tax Act. Many assume paying income tax is the same as Tax Deduction at Source ( TDS), says certified financial planner Suresh Sadagopan. “ This is because banks do not deduct tax at source if your interest income from fixed deposits is up to or more than Rs. 10,000,” he says. Therefore, many make small deposit accounts across more than one bank and save on TDS. Instead of one Rs. 5- lakh deposit, many make five Rs. 1- lakh deposit accounts. Yet, there is an incidence of income tax liability under the head of income from other sources when you take into account all the interest incomes together. When investors put money in tax- saving bank deposits, that have a lock- in of five years, they assume the interest earned on these deposits is also tax- exempt. This is untrue. Only the principal component or the capital invested in the deposit scheme is so exempt. When you invest in a fund of funds, the major drawback is their tax treatment. Typically, a fund investing more than 65 per cent in equities is considered an equity fund. Long- term capital gains arising out of investment in such a fund is tax- free. However, a fund of fund investing more than 65 per cent in equity is also considered adebt fund. This means investors have to pay a long- term capital gain at 10 per cent with indexation or 20 per cent without it; else, the gains will be added to the income and taxed on the relevant slab, if held for a short term. To avoid paying high tax on rental income, many home owners ask for a very high deposit and a comparatively lower rent. While some tenants might prefer this arrangement, it can be taxing for home owners. For instance, if you charge a rent of Rs.
10,000 and the fair value of the property is Rs. 80 lakh but you have taken a deposit of Rs. 1.5 crore, you will get pulled up for it. Tax experts say a part of such a deposit will be treated as rental income, levied on a notional gain. Many may know that if a second property is bought on a home loan, then there is no limit on the interest repayment that can be claimed under Section 24 of the I- T Act because a second property is considered let- out. This norm is applicable even to a first property if it is let- out. The tax benefit for repayment of interest on a home loan taken for a self- occupied property is capped at Rs. 1.5 lakh a year. Similarly, many would be aware that proceeds from the sale of a house property get indexation benefit. But the rate applicable is only at 20 per cent with indexation. Only gains from financial assets ( mutual funds, shares) get the option of either 10 per cent without indexation or 20 per cent with it, whichever is lower. Many individuals dont know that funds borrowed for renovating a house could be claimed for a tax deduction. Interest paid on a loan utilised for renovation is eligible for deduction of up to Rs. 30,000, under the head of income from house property. You are entitled for the deduction if you prove the loan had been used for renovation. Here, the capital should be borrowed after April 1, 1999 but the construction should not be completed within three years from the end of the year in which the capital was borrowed. The deduction of interest repayment (of up to Rs. 1.5 lakh) on the home loan is allowed if the acquisition/ construction is completed in three years from the close of the financial year in which the loan was taken. Sadagopan says many small investors feel contributing to more than one Public Provident Fund ( PPF) account means being liable for tax benefits of Rs. 1 lakh from each of these. This is untrue. What many do is make, say, three accounts, one in his or her name and two in each of their minor children’s name. They assume they can claim for tax benefits of Rs. 3 lakh; they can claim for only up to Rs. 1 lakh.

Source: www.business-standard.com

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The Draft report on GAAR by the Expert Committee.

GAAR - THE EXPERT COMMITTEE HEADED BY DR. PARTHASARATHI SHOME ON GAAR SUBMITS THE DRAFT REPORT; COMMENTS FROM STAKEHOLDERS AND GENERAL PUBLIC INVITED BY 15-9-2012

Press Release, dated 1-9-2012

The Government had constituted an Expert Committee on General Anti Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the GAAR guidelines as well as a roadmap for implementation.

The Committee, chaired by Dr. Parthasarathi Shome, has submitted its draft report after analysis of the GAAR provisions and noting the concerns expressed by various shareholders. The draft report has recommended certain amendments in the Income-tax Act, 1961; guidelines to be prescribed under the Income-tax Rules, 1962; circular to clarify GAAR provisions along with illustrations; and other measures to improve tax administration specifically oriented towards GAAR matters.

The report of the Committee has been uploaded on the Finance Ministry's website (http://finmin.nic.in) for comments from stakeholders and the general public.

The comments and suggestions on the draft report may be submitted by 15th September, 2012 at the e-mail address (jstpl2@nic.in) or by post at the address: Joint Secretary (Tax Policy & Legislation-II), Room No.152, North Block, Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, North Block, New Delhi - 110001 with "Comments on GAAR Committee" written on the envelope.

The Terms of Reference of the Expert Committee on GAAR Click Here

Constitution of an Expert Committee on GAAR Click Here

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Draft guidelines regarding implementation of General Anti Avoidance Rules (GAAR) by Income Tax

Draft guidelines regarding implementation of General Anti Avoidance Rules (GAAR) in terms of section 101 of the Income Tax Act, 1961.

The Chairman, CBDT, Vide OM F.NO. 500/111/2009-FTD-1 Dated 27 February, 2012 constituted a Committee under the Chairmanship of the Director General of the Income Tax (International Taxation) to give recommendations for formulating the guidelines for proper implementation of GAAR Provisions under the Direct Tax Code Bill, 2010 and to suggest safeguards to these provisions to curb the abuse thereof. The Committee comprised of the following officers :

Guidelines u/s 101 of Income Tax Act, 1961
Section 101 of the Finance Act, 2012, provides that “the provisions of this Chapter shall be applied in accordance with such guidelines and subject to such conditions and the manner as may be prescribed”. The Committee makes the following recommendations to be incorporated in the guidelines.

Know More about CBDT Direct Tax Code Draft Guidelines of GAAR Click Here.

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Notification Regarding Printing of MICR Code and IFSC Code on Passbook/Statement of Account

RBI/2011-12/516
DPSS (CO) RTGS No. 1934/04.04.002/2011-12

April 20, 2012

The Chairman and Managing Director /
Chief Executive Officer of all banks participating in RTGS, NEFT and NECS

Dear Sir/Madam,

Printing of MICR Code and IFSC Code on Passbook/Statement of Account

As you are aware, the MICR code is necessary for all Electronic Clearing Service (ECS – Credit and Debit) transactions. Similarly, the IFSC code is a pre-requisite for NEFT and RTGS transactions.

2. Currently, the MICR code is available on the cheque leaf along with the IFSC code of the branch. On a review it has been decided that this information should also be made available in the passbook / statement of account of the account holders.

3. Banks are accordingly advised to take necessary steps to provide this information as indicated above in all passbook / statement of account to their account holders.

4. Please acknowledge receipt and furnish an action taken report within 15 days of receipt of the circular.

Yours faithfully,

Chief General Manager
(Vijay Chugh)

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What persecution takes by the Deductor when TDS Deposit/Payment made late?

When the TDS Deductor (Individual/HUF/Company), default to deposit/payment TDS within stipulated prescribed time at Central Government such Deductor (Individual/HUF/Company) it must takes below persecutions:

Facts of the case: - the assessee-company deducted an amount as TDS but deposited this amount with interest to the credit of the central government after the prescribed time limit. Thereafter, show-cause notice was issued to the company and its director, being the principal officer of the company, for the prosecution under section 276B and Section 278B of income tax act. The company contends that TDS has already been deposited, there was no default and no prosecution can be ordered.

Held: - once a statute requires to pay tax and stipulates period within which such payment is to be made, the payment must be made within that period. If the payment is not made within that period, there is default and an appropriate action can be taken under the act. Interpretation canvassed by the appellant would make the provision relating to prosecution nugatory. It is true that the act provides for imposition of penalty for non-payment of tax. That however, does not take away the power to prosecute accused person if an offense has been committed by them.

Company is liable to prosecution even though, it is not a natural person but legal or juristic person. Principal Officer of the company could be prosecuted if no reasonable cause was shown by him for late payment or non-payment. [Madhumilan Syntex Ltd. Vs. Union of India (2007) 160 taxman 71(SC)].

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For Individuals & Firms, Digital Signature Certificate made mandatory w.e.f 1st July 2011, whose accounts audited u/s 44AB

Friends, Digital Signature Certificate made mandatory w.e.f 1st July 2011 for Firms and Individuals whose accounts are required to be audited u/s 44 AB of the Income Tax Act’ 1961. Regarding This see Income Tax Notification No. S.O. 1497(E) dated 1st July 2011.

The users belonging to above mentioned categories who have already registered their digital-signatures may continue to file this year’s return also with same DSC. However, the users who are applying for new digital-signatures for registration and subsequent e-filing of returns are advised to apply for DSC-with-encrypted-PAN only.

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11 Plans Directorates for Tax Exemption : CBDT

Net Delhi (PIT): To speed up clearances of tax exemption cases, the Central Board of Direct Taxes (CBDT) will set up 11 more specialized offices in the country.

“CBDT plans to have directorate [exemptions] in all the states and to begin with we will be setting up 10-11 new directorates,” a revenue official said.

However, the official did not specify any time frame for creation of the specialized offices (directorates).

Exemptions are given under the Income Tax Act, 1961, to encourage and fulfill certain social objectives relating to areas such as sports, charity, religion and education.

The exemption wing of the Income Tax Department, headed by Director General of Income Tax (Exemptions), currently has seven directorates — Kolkata, Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Mumbai.

When the new directorates are operationalised, the number will increase to 18.

The government also allows tax exemptions to various organizations engaged in activities like charity, religious activities and scientific research-related.

Early this year, the board had set up a committee to suggest ways to further strengthen the administrative process in relation with exempt entities.

The committee is likely to submit its report early next month, the official said.

Source: PTI

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