tax

Pre-budget Memorandum for Union Budget 2012-13

Sl. No. Subjects of Suggestions

1. Income Tax

(A) Corporate Taxation

(B) Personal Taxation

2. Central Excise

3. Customs Law

4. Service Tax

5. Central Sales Tax

6. Others

1. INCOME TAX

(A) Corporate Taxation

i) Deduction for expenditure on Corporate Social Responsibility (CSR)

Corporate sector needs encouragement to progressively integrate the activities on the social front for the development of the society, with the business purpose and business plan of the company.

Suggestion:

It is suggested that a new section may be introduced in the Income Tax Act to recognize the expenditure which is incurred by a company and which is certified by a Practicing Company Secretary (after conducting CSR audit) as expenditure incurred for discharging the corporate responsibility towards the society.

Companies Bill, 2011 contains a provision which requires specified category of companies to incur a prescribed percentage of their profit on CSR Activities during the financial year. Therefore, now a need arises to encourage companies towards CSR, by allowing them a weighted deduction of 150% of the amount expanded on CSR activities.

ii) Corporate Tax Rate

Corporate tax rate of 30% plus surcharge of 5% plus cess of 3%, results in effective tax rate of 32.45 per cent for domestic companies and tax rate of 40% plus surcharge of 2% plus cess of 3%, results in effective tax rate of 42.024 for foreign companies which is significantly higher than in other developing / developed countries.

In addition to this, dividend distribution tax and lowered depreciation rates impose a further strain on companies leading to increased outgo towards income taxes thus leaving inadequate funds for generation of internal resources for ploughing back for expansion, modernization, technology up- gradation, R&D etc.

Considering the current economic challenges, Indian economy needs infusion of foreign capital in the form of FDI and FII inflows. Huge capital is required for the crucial infrastructure building in railways, airports, ports, roads and power generation etc.

Suggestion

The surcharge and cess on corporate tax may be abolished. Further, corporate tax rate may be brought down to 25% and tax rate applicable to foreign companies may also be relooked to provide level playing field and to facilitate better tax compliance and bring down cost of doing business in India.

iii) Minimum Alternate Tax (MAT) Rate

The Finance Act, 2011 increased the rate under MAT provisions from 18 per cent to 18.5 per cent. The rate of 18.5% is high as it adversely affects the MAT paying companies particularly the infrastructure companies.

Suggestion:

The MAT rate may be brought down to 15 % from 18.5%.

iv) Dividend Distribution Tax (DDT):

Finance Act 2008 amended the provisions of Section 115-O of the Income-tax Act, 1961 (the Act), to mitigate the cascading effect of DDT in a single tier structure, by inserting sub-section (1A) which reads as follows:

“1A: The amount referred to in sub-section (1) shall be reduced by:

(i) The amount of the dividend, if any, received by the domestic company, during the Financial Year, if:

(a) Such dividend is received from its subsidiary; (b) The subsidiary has paid tax under this section on such dividend; and

The amendment to section 115-O mitigates the cascading effect of taxation of dividend, only upto one level. However, cascading effect of DDT still continues to be felt in case of second level and the further step-down subsidiaries. Deletion of clause (c) of the newly inserted subsection (1A) will extend the benefit to a muti-tier structure and hence multiple incidence of DDT on up-flow of dividend from subsidiary company to holding company can be prevented in all cases.

Suggestions:

• It is suggested that the clause (c) of the newly inserted subsection (1A) may be deleted so that the cascading effect of DDT can also be avoided in a multi-tier structure.

• Further, investment companies which do not necessarily have subsidiaries and invest in various companies in the open market should also be eligible for such deduction on further distribution of dividend on which DDT has been paid.

v) Depreciation

The rate of depreciation for general machinery and plant has been reduced from 25% to 15%, along with the enhancement of initial depreciation rate from 15% to 20%. The increase in the initial depreciation has not gone far enough to neutralize the impact of decrease in normal depreciation.

Suggestion:

With a view to allow industry to keep pace with rapidly improving technology, it is suggested that the deprecation rate on plant & machinery may be enhanced from 15% to 25%. Further, in case of plant and machineries used for double / triple shift basis, permit assesses to claim depreciation at least at the rate as permissible under the Companies Act.

(B) Personal Taxation

’Middle Class’ is the back bone of the Indian economy. Salaried class, small entrepreneurs and professionals have been reeling under the high cost of living. Any increase in the income level has been neutralized by ‘static exemptions / deductions’ under the Income Tax Act and inflation. There is urgent need to provide significant relief to this ‘back bone’ to sustain and promote the growth of the economy:

i) Children Education Allowance

The exemption limit for Children Education allowance may be raised from Rs. 100 per month to Rs. 1000 per month per child for maximum 2 children or actual expenses, whichever is less.

ii) Transport Allowance

The exemption limit for transport allowance to meet expenditures of commuting from residence to the place of work may be raised from Rs. 800 to Rs. 3200 per month. This is considering huge fluctuation/increase in fuel cost in relevant past.

iii) Revision of Leave Encashment Exemption limit

The maximum exemption limit of Leave encashment for non-government employees may be revised from Rs. 3 lacs to Rs. 10 lacs in view of the lack of social security support to the retiring non-government tax payers.

iv) Reimbursement of Medical Expenses

The exemption limit of medical expenses reimbursement under section 17(2)(viii) was raised from Rs. 10,000 to Rs. 15,000 by Finance ( No.2) Act, 1998. In view of the rising cost of medical facilities and medicines, it is suggested to increase the exemption limit from Rs.15,000 to Rs.50,000.

v) Limit of deduction under section 80C

The overall limit of Rs 1,00,000 is inadequate as compared to the investments which are covered under the section. Moreover, in recent time, the limit of PPF investment has also been raised from Rs. 70,000 to Rs.1,00,000.

Suggestion:

The deduction limit may be revised to Rs.1,50,000 from the existing limit of Rs.1,00,000 to provide different options of investment to the assessee.

vi) New section for deduction of interest on bank deposits

With the inflationary market trends, there is a need to promote saving among the public and also to mobilize funds for the industry at the cheaper rate.

Suggestion

A new section may be introduced to provide for the deduction upto Rs. 20,000 of interest income on bank deposits.

(vi) Deduction of interest expenditure under the Income under the head House Property

The property prices have increased many folds in last 10years. The existing deduction of interest expenditure of Rs.1,50,000, charged against the loan raised for self-occupied property is insufficient.

Suggestion

The limit of deduction on interest paid against self-occupied property may be increased to Rs, 3, 50,000/-.

(vii) Leave Travel Concession for Foreign Travel

Section 10(5) allows exemption for assistance or concession received from employer for employee and his family on leave to any place in India. There is no provision in the Act which covers the travel outside India.

Suggestion:

Section 10(5) may be amended to exempt the concession/assistance received from the employer for foreign travel.

(viii) Securities Transaction Tax

At present, the STT paid on transaction of sale /purchase of shares is not allowed as deduction under the head capital gains. The deduction of STT is allowed only under the head profit and Gains from Business or profession only if the assessee is engaged in the trading of shares.

Suggestion

The STT paid may be allowed as deduction by including it in the cost of acquisition and selling expenses under the Capital Gains. It will help in strengthen the capital market.

(i) Alternate Minimum Tax (AMT) on LLP:

The Finance Act, 2011 introduced Alternate Minimum Tax on Limited Liability Partnerships which challenges the main advantage of formation of LLP over the companies.

The deduction under section 80H to 80RRB and deduction under section 10AA shall be added to the Regular total income for calculating the adjusted total income. This addition will defeat the very purpose of deduction under the Act.

Suggestion:

In order to encourage the formation of LLPs, the provisions of Alternate Minimum tax may be abolished.

(ii) TDS for non-quoting of Permanent Account Number (PAN)

Finance (No. 2) Act 2009 inserted section 206AA w.e.f. from 1.4.2010. The new section provides that in the event of non- submission of PAN by the payee, tax will be deducted at the higher of the following rates, namely;

• Rate specified in the relevant provisions of the Act.

• Rates in force.

• @ 20%

The rate of 20% for non-quoting PAN no. will not serve the purpose for which this section was introduced as the persons who falls in the tax slab of 30% is ready to pay tax @20% if he has the chance to hide his income. Further, Section 115A(5) specifically exempt foreign companies from the requirement of furnishing return if the income is derived from certain specified receipts. Therefore, there is reluctance on part of the foreign entities to comply with the requirement of obtaining PAN.

Suggestions:

• From revenue prospective, the rate of 20% may be increased to 30%.

• Section 206AA may suitably be amended to bring out the non-residents from its purview.

(ii) Rate of Interest on Tax Refunds – Sec 244A

Under section 244A interest is computed @ 6% per annum on tax refunds payable by the Government however in cases of interest payable by the assessee to the Government, such as in section 234B, rate is 12% p.a.

Suggestion:

A uniform rate of interest of either 6% or 12% p.a. both for refunds and tax dues payable by the Government and assesses respectively may be prescribed.

(iii) Relief for Export of Services

India has started witnessing an opening up for the services sector. It has created opportunities for Indian practicing professionals like, Company Secretaries in practice etc. to export professional services. Indian professionals need to launch frontal attack in order to capture professional service markets in other parts of the world while Indian market is getting opened to multi- national firms. India possesses an avalanche of professional services talent. But it is necessary to provide financial boost to Indian professional services’ market and market penetration abilities. Therefore, various Income tax concessions are a call of the day for export of Indian professional services.

Suggestion:

It is suggested to allow 100 per cent deduction on export of professional services to the extent of convertible foreign currency brought in through such exports.

(iv) 100 per cent EOU for professionals

100 per cent EOU concept would enable professionals to form partnerships or open proprietary EOUs with a thrust on export market.

Suggestion:

100 per cent EOU concept may be brought in the arena of professional services. 100 per cent EOUs for Company Secretarial Services etc., may be created with relevant Income tax and Indirect tax benefits to such EOUs.

(v) Taxation of Stock-options/Sweat Equity

U/S 17(2) the value of any specified security or sweat equity shares allotted/transferred to an Employee free of cost or at a concessional price is taxed as a perquisite at the time of allotment or transfer. This situation is inequitious as the Assessee is taxed on notional income. Further there is a lot of ambiguity about the deductibility of the ESOP cost in the hands of the employers in absence of any specific provisions in the Act. Companies have been placing reliance on various judicial precedents to claim these expenses.

Suggestion:

The incidence of tax should be shifted to the time when the assessee disposes off the shares and earns capital gains. Further, some provision may be brought in the Act to clarify the deductibility of the ESOP cost in the hands of the employers.

(vi) Company Secretary may be included in the Definition of “Accountant” given under Explanation to Section 288(2) of Income-Tax Act, 1961.

The Institute of Company Secretaries of India is a premier professional body established under an Act of Parliament, i.e., the Company Secretaries Act, 1980. Company Secretary, a competent professional comes in existence after exhaustive exposure provided by the Institute through compulsory coaching, examinations, rigorous training and continuing education programmes, and is governed by the Code of Conduct contained in the Company Secretaries Act, 1980.

We wish to apprise that the curriculum of Company Secretaryship Course includes, inter-alia, detailed study of Direct Taxation, Indirect Taxation and Financial Accounting. Thus, vast exposure is provided to the Company Secretaries in the areas of taxation and accounts, enabling them to acquire proficiency in taxation and other related subjects.

Secretary of a company has been recognized as a principal officer of the company responsible for its affairs under a host of legislations including Companies Act, 1956, Customs Act, 1962, Central Excise Act, 1944, etc. Secretary of a company is also required to sign the balance sheet and profit & loss account of the company by virtue of Section 215 of the Companies Act 1956.

Company Secretaries in Practice have been recognized to act as Authorized Representative before -

a) The Customs, Excise and Service Tax Appellate Tribunal under the Customs Act, 1962 [Section 146A(2)(d)] read with Customs (Appeals) Rules, 1982 [Rule 9(c)] and The Central Excise Act, 1944 [ Section 35Q (2)(c)] read with Central Excise (Appeals) Rules, 2001[Rule12(c)].

b) Service Tax vide Authority for Advance Ruling (Procedures) Rules, 2003-

Rule 2(d)(i)

c) Income-Tax Act, 1961 vide Section 288(2)(v) read with Rule 50(2A) of the

Income Tax Rules,1962

d) Securities Appellate Tribunal vide Section 15V of the SEBI Act, 1992

e) Central Electricity Regulatory Commission vide the Central Electricity

Regulatory Commission (Miscellaneous Provisions) Order, 1999- Explanation to Order No.6(i)

f) Telecom Regulatory Appellate Tribunal vide the Telecom Regulatory

Authority of India Act, 1997- Section 17

g) National Company Law Tribunal vide Section 10GD of Companies Act

1956

h) Competition Commission of India Competition Act, 2002 – Section 35(b)

i) Wealth Tax Authorities vide Wealth Tax Rules – Rule 8A(7)

j) State VAT Legislations.

k) Reserve Bank of India – Diligence Report for Banks Vide Circular DBOD

No. BP.PC. 46/08.12.001/2008-09

l) SEBI – Internal Audit of Stock Brokers / Trading Members / Clearing

members Vide Circular No. MRD/DMS/CIR/-29/2008

Company secretaries are also authorized to conduct VAT Audit under the Jharkhand VAT Act, 2005.

When the Income-tax Act was enacted in 1961, the Company Secretaries Act was not in existence. It came into existence in the year 1980. It appears that due to this reason company secretaries are not included in the definition of the term, “Accountant”. Company Secretaries are allowed to appear before authorities under Income-tax Act only if they make an application in this regard to the Chief Commissioner for entry of their name in the register to act as an authorized Income-tax practitioner. This is causing hindrances in their reaching greater heights in the profession.

The three Institutes, namely, the Institute of Company Secretaries of India (ICSI), the Institute of Chartered Accountants of India (ICAI) and the Institute of Cost and Works Accountants of India (ICWAI) have been constituted under the statutes of Parliament, i.e., the Companies Secretaries Act, 1980, the Chartered Accountants Act, 1949, and The Cost and Works Accountants Act, 1959 to develop and regulate the profession of Company Secretaries, Chartered Accountants and Cost and Works Accountants, respectively. Further, these three Institutes function under the administrative control of the Ministry of Corporate Affairs, Government of India and thus stand on equal footing.

We, therefore, request for inclusion of –

A) “Company Secretary within the meaning of the Company Secretaries Act, 1980 (Central Act 56 of 1980)” in the definition of “Accountant” of Income Tax Act, 1961.

The proposed amendment will provide the entrepreneurs, specially the SMEs, a wider and cost effective scope for selection of professionals and will be an important initiative towards simplified tax compliance regime.

(vii) Authorisation of Company Secretaries for appearance before National Tax Tribunal (NTT)

Section 13 of NTT Act, 2005 authorizes only Chartered Accountant or legal practitioner to act as authorized representative. It seems that the intention of the Government was to restrict the appearance before NTT only to the members of the regulated profession. We wish to bring to your notice that the members of our Institute will not be able to appear this seems to an inadvertent and un- intended omission.

Submission

It is requested to include the profession of Company Secretary within the meaning of the Company Secretaries Act, 1980 (Central Act 56 of 1980)” in the definition of “Accountant” of Income Tax Act, 1961.