Rajiv Gandhi Equity Savings scheme may have a laudable objective; it is the responsibility of the government to ensure that the ordinary investors, whose financial literacy is at a low ebb, are protected to the maximum extent to ensure success of the scheme
In the Budget 2012-13, finance minister Pranab Mukherjee announced a new scheme called Rajiv Gandhi Equity Savings Scheme “to encourage flow of savings in financial instruments and improve the depth of the domestic capital market”. Though there are both positive and negative views on this subject depending on which side of the fence you are, at this stage there is no merit in debating whether it is a wise decision or not to have such a scheme to tempt the ordinary middle class to dabble into the stock market through tax incentives, as it is already a fait accompli and the government is in the process of finalising the contours of the scheme. As per press reports, the scheme is under formulation and will be ready within the next one month. So this is the right time to give suitable suggestions to make it as investor-friendly as possible and make the best of a good or bad bargain.
The scheme as announced by the finance minister is meant for individual investors with an annual income of below Rs10 lakh and who invest up to Rs50,000 in stocks listed on the recognised stock exchanges in our country. Such investors will get a 50% tax deduction in the year in which they make the investment provided they retain that investment for a minimum period of three years, as it has a lock-in period of three years. This obviously means that if you sell these shares within the lock-in period, it might be added back to your income in the year in which you sell these shares. However, this benefit is available only once in a life time and may not be repeated in future.
In the interest of orderly implementation of the scheme and to ensure its success, it is desirable to have complete clarity on the scheme and following suggestions are worth considering to make it really worthwhile for the common man, who may be tempted to enter this den of speculation for the first time in his life, to avail of the tax benefit so generously granted by the finance minister.
While it is easy to encourage the common man to invest in the stock market by offering baits like tax incentives, in a country like India, where financial literacy is at a low ebb, it is the responsibility of the government to ensure that the investors are not taken for a ride either by the companies or by the market intermediaries. These are, therefore, some of the suggestions for the consideration of the finance minister, who should ensure that the investors are protected to the maximum extent and the good intentions of the scheme are not frustrated by its misuse by unscrupulous people in the financial market.
(The author is a banking and financial analyst. He writes for Moneylife under the pen-name ‘Gurpur’)
“They (Vodafone) will have to automatically pay the tax after approval of the amendments to the Finance Bill by Parliament. We don’t need to send a fresh tax demand notice to them,” a finance ministry official said on Wednesday
New Delhi: British telecom major Vodafone will have to pay over Rs11,000 crore tax, once the amendment to change the Income Tax (I-T) Act is approved by Parliament, reports PTI quoting a finance ministry official.
“They (Vodafone) will have to automatically pay the tax after approval of the amendments to the Finance Bill by Parliament. We don’t need to send a fresh tax demand notice to them,” a finance ministry official told PTI.
The government on Tuesday refunded Rs2,500 crore along with 4% interest to Vodafone following dismissal of its review petition against the 20th January order by the Supreme Court.
The government had raised a Rs11,000 crore withholding tax demand on UK-based telecom firm for its $11 billion acquisition deal with Hutchison Essar in 2007.
With an aim to clarify the ‘intent’ of the Income Tax Act, 1961, on taxation of overseas deals involving domestic assets, finance minister Pranab Mukherjee in his 2012-13 Budget has proposed to amend the law with retrospective effect, to ensure that such deals are taxed.
“You can only tax on the basis of existing law. We have no right to tax them, current law will prevail so long law is not changed,” Law minister Salman Khurshid had said Tuesday after a meeting of senior Cabinet ministers following dismissal of review petition by the apex court.
According to the finance ministry official, “an important question is about equity in taxation. While ordinary tax payer pays its taxes honestly, those who have huge wealth do not pay taxes by taking recourse to tax avoidance through creation of multiple structures and routing their investments through low tax and no tax jurisdiction.”
In the $11.2 billion deal in May 2007, Vodafone had acquired 67% stake in the Hutchison-Essar (HEL) from Hong Kong-based Hutchison Group through companies based in the Netherlands and Cayman Island.
On industry concerns that retrospective amendment to the tax law would create negative sentiments among foreign investors, the official said the apprehension is “not correct”.
Foreign Direct Investment (FDI), he said, “is not primarily dependent upon tax, but is more governed by aspects like huge domestic market, low cost of operation, low labour cost and huge skilled manpower”.
Finance minister Pranab Mukherjee recently said the move was not merely to prevent erosion of revenues in present cases but also to prevent the outgo of revenues in old cases.
Illustrating the point, he had said that suppose the government had collected taxes in such cases during the last 10 years and did nothing after the Supreme Court judgement, companies would demand refund of the tax paid by them.
At the post-Budget briefing, finance secretary RS Gujral had said the amendment could fetch Rs35,000 to Rs40,000 crore.
The finance ministry has said that “intention of the legislature on the initial stage was very clear that the transactions like Vodafone are subject to taxation in India”.
As per experts, the changes in the Income Tax Act will have a bearing on about 500 overseas deals of similar kind.
Deposing as a prosecution witness in the ongoing trial of the 2G spectrum allocation case before special CBI judge OP Saini, former TRAI chairman Nripendra Mishra referred to the two letters written by him in 2007 to the DoT requesting to “give weight” to the TRAI recommendations
New Delhi: The Telecom Regulatory Authority of India (TRAI) had ‘vigorously’ pursued with the Department of Telecom (DoT) its 2007 recommendations for low entry fee from telecom companies for allotment of the second generation (2G) spectrum licences, reports PTI quoting former TRAI chairman Nripendra Mishra in a Delhi court.
Deposing as a prosecution witness in the ongoing trial of the 2G spectrum allocation case before special CBI judge OP Saini, Mr Mishra referred to the two letters written by him in 2007 to the DoT requesting to “give weight” to the TRAI recommendations.
“I have been shown a letter and its contents are correct and it bears my signature. Through this letter I requested, inter alia, to give weight to the recommendations of the authority (TRAI) and to precess the same in reasonable time frame,” he said.
“I have been shown another letter dated November 6, 2007 written by me to the Secretary, DoT, D S Mathur and the same bears my signature. Its contents are correct. I was pursuing the issue of consideration of recommendations of TRAI by the DoT vigorously,” Mr Mishra added.
He said competition in the telecom sector and ensuring level playing field was a concern in TRAI’s recommendations.
Mr Mishra made the statements while being cross-examined by Swan Telecom promoter Shahid Usman Balwa’s counsel and said that some of the recommendations made by TRAI were considered subsequent to his letters.
Mr Mishra, however, added, “The consideration of TRAI recommendations by DoT was part of its duties and my letter may not be seen as catalyst”.
He, however, failed to recollect if during his tenure as TRAI chairman between 2004 and 2009 telecom companies sold their equities.
Mr Mishra said “I do not remember if during my tenure as DoT secretary, Shyam Telecom sold its entire equity in Hexagon for Rs430 crore and this transaction for the sale of equity shares”.
“I do not recollect if during my tenure as chairman TRAI several telecom companies sold their equities in both primary and secondary markets,” he said.
He also said allocations of the 2G spectrum licences were to be done in accordance with the Unified Access Services Licence (UASL) guidelines of 2005.
“It is correct that UASL guidelines dated 12 December 2005 were the extant guideline during my tenure as chairman, TRAI, between 22 March 2006 and 22 March 2009 and the DoT guidelines are binding on TRAI also,” he said.
Regarding difference of opinion between DoT and TRAI on a provision of TRAI Act dealing with recommendations on need and timing for introduction of new service providers, Mr Mishra said he had not written to DoT for putting on hold the 122 telecom licences issued during the tenure of former telecom minister A Raja in January 2008.
Mr Mishra answered several questions relating to the teledensity and competition in the telecom industry and said growth in teledensity in rural areas was ‘largely’ because of the competition.
He said the concept of level-playing field was a “prime concern” of TRAI in suggesting the regulatory framework for telecom services and government's policy was in “larger interest” of public and revenue maximisation was not its sole objective.