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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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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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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Indirect Tax Collected by Government more than estimated.

Friends, Indirect Tax collected more than expected by the Government on 30^th & 31^st March 2011. This indirect tax is only for Fin. Year 2011-12. The government further said that, the indirect tax collections for FY2010-11 have exceeded the revised estimate of Rs 3.34 lakh crore for the fiscal on the back of strong economic activities and the partial withdrawal of fiscal stimulus measures. According to Central Board of Excise and Customs (CBEC) Chairman S Dutt Majumder, the Finance Ministry expects at least Rs 7,000 crore more than the revised estimate for the last fiscal.

“… Over and above the revised estimate, we expect Rs 7,000 crore minimum, it may be more also,” Majumder told reporters on the sidelines of an Assocham event.

He further said the Finance Ministry has exceeded the revised target by Rs 6,000 crore, with the total indirect tax collection at Rs 3.40 lakh crore already.

“I expect more. This does not take into consideration customs collection of March 30 and 31.

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