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No beating about the bush.
One of the major problems of taxpayers is that they have to communicate with the Centralised Processing Centre based in Bengaluru only through letters sent by ordinary post
A large number of taxpayers across the country face various difficulties in rectifying the intimation issued by the Centralised Processing Centre (CPC) under section 143 (1)(a) of the Income-Tax Act, 1961. In order to find a solution to this and to take up the matter with the appropriate authorities, the Bombay Chartered Accountants' Society (BCAS) has asked its members to send a brief summary of the difficulties faced.
The intimation issued under section 143(1) of the I-T Act authorises the assessing officer (AO) to issue refunds and raise a demand of tax along with interest due strictly on the basis of the returns furnished by the assessee. Any mistake in computing the tax by the taxpayer falls within the scope of the Act. However, it does not cover issues like whether the income covered is chargeable to tax or not, the applicable rate of tax, the income shown as royalty, or business profit, or under any other head within the meaning of the double taxation avoidance agreement between India and other countries.
The problem is compounded in case the intimation is issued by the CPC, as there is no other way to communicate with the AO, except through letters, to a post bag number in Bengaluru. And the taxpayer has no way of knowing whether his letter has reached the appropriate authorities.
The BCAS said in a statement, "It seems that the problem becomes more acute due to lack of clarity about the methodology of getting such mistakes rectified, and on account of the fact that the applications for rectification made by the assessees remain pending without proper action."
According to the chartered accountants' society, among the major mistakes observed in the intimation are not giving credit for tax deduction at source (TDS), adjustment of wrong demand for earlier years based on erroneous records against the legitimate refund due to the assessee in subsequent years, and wrong adjustment while computing gross total income.
BCAS said its taxation committee is actively considering taking up this matter with the appropriate authorities, and in this respect it has requested all members to submit a summary of difficulties, without disclosing the identity of the assessees.
Members of the BCA can also send information about the actual number of pending applications, without citing particulars of individual cases, and the amount involved, in a format available on the society's website before 31 May 2011.
Right from the definition of a ‘senior citizen’ for tax evaluation to the definition of a ‘Non-Resident Indian’, our tax and forex laws are full of inconsistencies and discrepancies. It is high time the government removed these lacunae
Our laws—mainly those dealing in economic matters like the Income-Tax (I-T) Act and Foreign Exchange Management Act (FEMA) are flawed, and riddled with inconsistencies. They leave the common citizen utterly confounded.
In fact, when I was having an informal chat with a top bureaucrat, he remarked in a lighter vein that if all our laws were crystal clear, a citizen would not find the need to approach the sarkari babus, who would then become redundant… and sent home! This, he quipped, was the reason behind legal provisions that are often confusing.
Let’s examine a few of the lacunae:
In the first place, the term “senior citizen” is nowhere defined in the Income-Tax Act, 1962. For “senior citizen“ assessees, the Finance Act 2011 has lowered the age for the threshold limit from 65 years to 60 years in Part III of the First Schedule dealing with tax slabs and rates.
The same Act has additionally created a new category of “Very Senior Citizens”—above 80 years. According to a report there are only 15,000 tax assessees in this 80+ age bracket, and one of them will be Manmohan Singhji!
On the other hand, corresponding or consequential changes on the same lines have not been brought in elsewhere in the Income-Tax Act in Section 80D for granting enhanced deduction for premium on health insurance to assessees completing 65 years. Similarly Section 80DDB (allowing deduction for expenses on treatment of prescribed diseases) is also applicable to those completing 65 years. Corresponding changes to lower the age to 60 years in these Sections ought to have been brought about at the same time. This is a glaring flaw, and necessary amendments need to be brought about immediately.
The other grey area is the term NRI (Non-Resident Indian), both in the I-T Act and FEMA (Foreign Exchange Management Act). This term, with its variants ‘PIO/OIC’, (Person of Indian Origin/Overseas Citizenship of India), is freely and very loosely bandied about—both by bureaucracy and citizens. Yet there is no common definition.
The Income Statute classifies assesses into ‘Citizen’, ‘Resident but not Ordinarily Resident’ and ‘Not Resident’ depending upon the number of days of their stay in India and outside India.
FEMA (and FERA—the Foreign Exchange Regulation Act, now repealed) has an altogether different take on the criteria for defining an NRI—it lays down the purpose of the stay outside India, irrespective of the number of days spent outside India. Thus anyone, other than a person staying abroad to pursue business, profession or vocation but on a tour, for studies, prolonged medical treatment or to spend time with family staying there, is not considered an NRI under FEMA, even though he may be an NRI under the I-T Act.
The tax status of staying out has been imported by the Limited Liability Partnership Act. The authorities related to foreign exchange like the Reserve Bank of India (RBI), and the Enforcement Directorate (ED) adopt the FEMA criteria. There are references to non-residents in the Companies Act, too. The FCRA (Foreign Currency Regulation Act) however, refers to “Foreign Citizens”.
The US IRS (Internal Revenue Service) has rightly targeted our diaspora who were trying to get the best of both worlds—residing abroad and not paying taxes on their funds parked in Indian banks in NRE (Non-Resident External)/FCNR (Foreign Currency Non-Resident) Accounts, which are tax exempt. The laws both in the US/UK as well as in India are very clear—declare the income earned anywhere in the world and claim legitimate exemptions/deductions like those provided by the Avoidance of Double Taxation Agreements entered into between the countries of their residence and India.
Since both the taxation and forex statutes fall within the ambit of the legislative jurisdiction of the finance ministry, both these definitions need to be appropriately synchronised. There is no legal justification for applying two differing standards to a same individual.
(The author is a Chartered Accountant and has been an auditor of a number of insurance companies)
The discontinuation of the tax holiday on the STPI scheme and the extension of MAT to SEZs has dealt a double blow to IT and ITeS industries
In the 1917 work, The Silence of the Sirens, the great philosopher Franz Kafka writes-"Someone might possibly have escaped from their singing; but from their silence, certainly never."
It rang true for the IT and ITeS industries when the Finance Minister remained silent on the STPI scheme. The scheme offered tax sops to technology companies operating and exporting services from designated technology parks. The scheme which initially ended on 31 March 2010 was extended for a year during the Budget proposals last year.
The industry sought another extension leading into the Direct Taxes Code (DTC), expected to come into effect on 1 April 2012. However, Pranab Mukherjee was in no mood to heed the call of the industry. The impact, though, will be absorbed mostly by the mid-cap companies from among the 7,000-odd companies operating in over 51 STPIs spread across the country.
For instance, almost 95% of KPIT Cummins' Rs730 crore revenues stem from units located inside these parks. Similarly, Hexaware also has about 80% of its revenues and consequent profits emanating from its STPI units. Firms like these are expected to face a situation where the tax outgo is likely to double for FY2011-12. While companies like Zensar, Hexaware, Hinduja Global, KPIT Cummins and Sonata Software are bracing for an increase in tax outflows, bigger and more established players will not be majorly affected by the provisions, having already run their benefits off their respective balance sheets.
Moving to an SEZ would mitigate some of the pain, but the FM has struck a pre-emptive blow even there by extending MAT to companies operating in SEZs. The rate has also been increased by 50 basis points from 18%. Prateek Aggarwal, Chief Financial Officer (CFO) of Hexaware highlighted the pain facing the mid-cap IT segment-"the smaller companies would find it difficult to make huge investments in moving to SEZs. It could prove to be a significant drain on all resources."
Again, the implication of MAT will be marginal on the IT majors, but complicates life for the small and medium players by forcing them to pay higher taxes, irrespective of where they ply their trade. It remains to be seen how many of these tier-II players opt to make the heavy investments needed to establish new capacities inside an SEZ. It is also going to cost more to take space inside an SEZ, as MAT has also been extended to the developers of SEZs. A little bit of additional pain will also be inflicted by Mr Mukherjee's decision to increase levies on aviation fuel and air travel. Travel is one of the major components of direct expenses for most IT companies and the new levies will add to their operational expenses.
NASSCOM, the association for technology companies, was disappointed with the Budget proposals.
"The IT-BPO sector faced double negatives-imposition of MAT on SEZs and withdrawal of tax exemption under Section 10A/10B. The SEZ Scheme was announced as an Act of Parliament. Only last year, it was clarified that under the Direct Taxes Code, SEZ units set up till 2014 would continue to get profit-linked tax exemptions. Imposition of MAT at 18.5% with an effective rate of nearly 20% nullifies the impact of any such incentive," it said.
However, there were a couple of positives too for India's mainstay in the services sector. First, the proposal to reduce tax on dividends received through foreign subsidiaries from 33% to 15% will help Indian multi-nationals retain a larger chunk of their foreign income.
The industry will also look to capitalise on India's renewed emphasis on e-governance. It is an area that promises to offer significant domestic business opportunities for the nimble and networked players in the market. There are several high priority initiatives like UID, GST Network, National Knowledge Network, Centralised Processing Units and rural broadband that will offer opportunities to help the government bridge the growing digital divide.
Reacting to the budget, S Mahalingam, CFO of TCS chose to focus on the positives and ignore the marginal impact on the taxation front. "Increased thrust in key areas like primary education, health, infrastructure, rural development, and financial inclusion would fuel broad-based growth and development," he said. "Enhanced focus on SEZs to drive growth and employment and clarity on the tax regime is welcome. This would aid recovery for the IT industry. Social transformation and technology enabled governance will gain momentum and this is good news for the country."
Overall, the finance minister has opted to resist the temptation to eschew popular measures for the IT sector and opted instead to continue moving towards a tax policy that integrates the hitherto blue-eyed industry with other major sectors of the Indian economy.