Income Tax Updates (31 Dec 2016 to 07 Jan 2017)

1. Blackmoney: India tweaks protocol to shed secrecy tag

January 7, 2017
To bolster capabilities of agencies probing foreign black money cases, India has begun the process of adding a new clause in its international tax treaties that will allow sharing of exchanged data between the multiple law enforcement departments, removing the rider of confidentiality that hampers the investigation. The new clause is being inserted in the Double Taxation Avoidance Agreements (DTAA) so that the data once obtained by the Central Board of Direct Taxes (CBDT), the nodal department for tax information exchange, could be shared with sister agencies like CBI, Enforcement Directorate, the Directorate of Revenue Intelligence and others for probe under money laundering, corruption, Customs and excise duty evasion and other laws. A revised DTAA, with the new clause, was signed here on Friday between India and Kazakhstan by CBDT Chairman Sushil Chandra and Kazakhstan Ambassador to India Bulat Sarsenbayev. – [7-1-2017]

2. Tax recovery from Swedish majors in payment dispute put on hold

January 7, 2017

The Central Board of Direct Taxes (CBDT) has suspended recovery of tax from Swedish companies whose disputes are being resolved through the Mutual Agreement Procedure (MAP) route, a move that will help in mitigating the hardship faced by such firms operating in India.
According to the CBDT guidance note, the tax demand will be kept in abeyance for two years if the Swedish companies furnish a bank guarantee of the disputed amount to the income tax authorities in India. Around a dozen large Swedish companies including H&M, Volvo, Oriflame Holding, are operating in India and several of them are locked in disputes with I-T authorities.
“Considering the hardship faced by the taxpayers during the pendency of MAP, as well as for efficient management of collection of revenue, the competent authorities of India and Sweden have signed a memorandum of understanding (MoU) regarding suspension of collection of taxes during the pendency of MAP,” the CBDT instruction said.
Under the MoU, the collection of outstanding taxes, in case of a taxpayer whose case is pending in MAP, would be kept in abeyance for a period of two years (extendable to a maximum period of five years through mutual agreement between the Competent Authorities of India and Sweden) subject to furnishing of a bank guarantee of an amount equal to the amount of tax under dispute and interest accruing thereon, it added.
Nangia & Co Managing Partner Rakesh Nangia said the instruction is a welcome move and will provide relief to Swedish companies doing business in India facing tax litigation with I-T authorities. “This instruction is intended to promote alternate dispute resolution measures. The interest of revenue has been duly safeguarded by providing that the Swedish company shall furnish a bank guarantee for the disputed tax demand,” Nangia said.
CBDT also said for an Indian resident taxpayer, the provisions of the MoU shall apply to MAP cases involving transfer pricing adjustments.
MAP is a process under which, tax dispute of a non-resident is resolved by mutual discussion between competent authorities of two countries.
MAP is generally a lengthy process and during pendency of such proceedings, Indian tax authorities generally ask such non-residents/ foreign companies to pay entire amount or a substantial portion of disputed tax demand.
This creates a financial burden on such foreign companies, if ultimately their income is decided to be not taxable in India by the Competent Authorities, experts said.
Bilateral trade between Sweden and India was $2.5 billion in 2015 and both countries have set an ambitious target of touching $5 billion by 2017. – [7-1-2017

3. Kazakhstan Tax Treaty Amended
January 7, 2017
India has amended its tax treaty with Kazakhstan, incorporating a special provision to ensure only genuine investors from the two countries take advantage of the agreement.
“The protocol inserts a Limitation of Benefits Article (LoB), to provide a main purpose test to prevent misuse of the double taxation avoidance convention and to allow application of domestic law and measures against tax avoidance or evasion,“ the CBDT said. – [7-1-2017]

4.Tax Relief for Swedish Firms

January 7, 2017
India has allowed Swedish companies relief from tax payments for upto five years if they have applied for settlement of their tax disputes through the mutual agreement procedure (MAP).The move could benefit Ikea, Volvo and Ericsson.
The Central Board of Direct Taxes has issued an instruction following an agreement with the Swedish government in this regard. This makes Sweden the fifth country to have this facility in India after the US, Denmark and South Korea.
“During the pendency of MAP, recovery of tax demand could lead to potential hardship for taxpayers as tax demand is yet to attain finality,“ CBDT said. – [7-1-2017]

5. CBDT seeks detailed info in AIR to catch money laundering post-
demonetization (Notification dated 06 January 2017)

6. CBDT issues circular for ‘TDS on Salary’ for AY 2017-18 (CIRCULAR 
NO. 01/2017 dated 02 Jan 2017)

7.Law on Taxing Indirect Transfer of Shares Likely to be Amended
January 6, 2017
Days after issuing a clarification on taxing indirect transfer of shares which sparked concerns among foreign investors, the government may be looking at amending the regulation, two persons in the know told ET.
“The government has received representations from many foreign investors. The government could take a relook at amending the law around taxing indirect transfer of shares,“ a senior tax official close to the development said.
Many foreign portfolio investors (FPIs), their custodians, private equity and venture capital funds reached out to Central Board of Direct Taxes (CBDT) and market regulator SEBI with their concerns.
“I have myself read one of the representations and while it may be too early to say what the amendment could be, the government can amend the regulations,“ he added. Many industry trackers expect the amendment to be announced in the upcoming budget. The tax officer, however, refused to comment on whether this could happen.
Investors who have reached out to CBDT and SEBI have sought some leeway in the original regulation that came to be in 2012 after the government amended the tax law while CBDT issued its clarification in late December. The government had introduced indirect transfer of share provision after the Vodafone controversy over retrospective taxes.
“This could adversely impact the returns of many investors including sovereign and wealth funds who invest into India dedicated funds and has become a worry for them. Many FPIs, banks and private investors have either made their representations to the government or are in the process of doing so. At a time when there are already many regulatory and tax changes affecting FPIs including on the Mauritius and Singapore treaty change, P Notes and GAAR, the new controversy around the indirect transfer of shares could be a dampener,“ said Rajesh H Gandhi, partner, Deloitte Haskins & Sells.
As per indirect transfer of shares regulation if shares of an Indian company held by a fund constitute more than 50% of its total assets and value exceeds ` . 10 crore, the transaction would be taxed in India.
While the government’s clarification in December was just based on the existing law, it spooked many FPIs who fear increase in tax demand going ahead.
Industry trackers say one of the biggest concerns for foreign investors is the threshold of ownership on which transactions will be taxable. As per the clarification, taxability applies to situations of transfer of any interest exceeding 5% in the overseas entity.
“If one looks at what the transfer at offshore level was intended to address, it was clearly for a situation where a significant shareholding at offshore level was effectively leading to transferring a significant holding in India; a 5% threshold at offshore level does not seem at all reasonable or be considered as meeting the original intent. One wishes this issue is addressed very quickly. Consistent representations have been made for the last two years,“ said Ketan Dalal, senior tax partner, PwC.
Many FPIs are worried as they see constant realignment of shareholding in their funds as investors exit, enter or change positions. The threshold of 5% could mean their tax liabilities going up tremendously. ET had on January 5 written that FPIs are seeking a threshold of 26% to trigger indirect transfer provisions.
FPIs have been also seeking relaxation in some of the compliance regulations under the framework. As per current regulations some companies whose shares are traded by FPIs will have to report every transaction to tax authorities. This not only increases compliance burden for FPIs but also Indian companies. This could discourage overseas investors to take significant exposure to India.
Many FPIs also worry that they could see returns from India getting impacted. Investors in FPIs can face 10%20% tax on long-term capital gains and tax of 30%-40% on short-term capital gains as per the current law, say industry trackers. – [6-1-2017]

8. Centre Confident of Keeping Budget Date

January 6, 2017
The Centre is “confident“ that, despite a joint Opposition petition to the Election Commission on postponing the budget, the annual fiscal policy exercise will be held on February 1 as scheduled.
EC announced the poll schedule for five states including politically crucial Uttar Pradesh on Thursday, and Opposition leaders have met EC, arguing for postponing the budget on the grounds that it can influence voters.
But several officials in the Prime Minister’s Office and the finance ministry ET spoke to said EC as well as states had been sounded out far earlier about the budget being brought forward. And that a national budget and national economic policy can’t be adjusted to state poll schedules. These officials spoke off record.
The finance ministry is going about the budget-making business as per schedule, officials said. One official said: “The government can present the budget… That is the prerogative of the government…and these are assembly polls,“ said a senior government official.
Another official said election announcements only impose a code of conduct, and that code does not say all economic decision has to come to a standstill. “Only the code of conduct given by EC has to be followed, meaning that no scheme or any sop specific to the state going for elections can be unveiled in the budget,“ he said.
“Things are different if the budget clashes with the general election -state elections are perpetually on in this country and a major central government policy document cannot be delayed because of it,“ a PMO functionary said.
He pointed out that Prime Minister Narendra Modi, in an October 26, 2016, meeting, had told all state chief secretaries that the budget was being advanced “by about a month“ to ensure spending starts from April 1. “All states were told to prep one their state budgets to bring them in tandem with the Central budget and there was an in principle agreement on the same for smooth coordination between state and central budgets. This means all political parties were aware as well…….the present protest is an afterthought,“ another PMO official said.
He also said EC was also sounded out on the possibility of the budget being advanced by almost a month to early February and that there was no objection from the commission.
A finance ministry official said the government had started mulling the idea of an early bud get as early as August 2016. The logic was to complete the entire process by March 31 so that spending can start from the first day of the new fiscal, April 1.
He also said a whole set of events followed from that decision, and everyone was aware of the budget schedule.
On September 21 last year, the union cabinet had endorsed the finance ministry’s plan for advancing the budget by a month. The budget circular, kick-starting the budget process, was issued a day later.
In keeping with that schedule, the finance ministry had announced on November 29 last year that North Block will be out of bounds for the media from December 1 till the budget day. – [6-1-2017]

9. Pension watchdog for tax parity between NPS and EPF
January 6, 2017
The pension regulator has sought tax parity between the National Pension System (NPS) and the Employees’ Provident Fund (EPF) in the coming Union Budget. Hemant Contractor, chairman of the Pension Fund Regulatory and Development Fund Authority (PFRDA), made this suggestion at a meeting on Thursday with the finance minister and officials. He was here in connection with the first meeting after demonetisation of high-value currency notes of the Financial Stability and Development Council (FSDC). Coming out of the meeting, Contractor said he’d made a case for EEE-status (meaning, exemption at all three stages of investment, accretion and withdrawal) for NPS, as against the present EET regime (exemption for the first two stages but taxation at withdrawal. EPF and the Public Provident Fund (PPF) are both having the EEE status; the maturity amount is not taxed at withdrawal either.
In the current year’s Budget, Finance Minister Arun Jaitley had made withdrawals from NPS on maturity tax-free up to 40 per cent of the total corpus; the balance 60 per cent continued to be taxable. “Our emphasis was more on increasing the pension coverage. The EEE benefit for NPS was the major demand. We have digitised a lot of our facilities,” said Contractor. The government is yet to amend the EPF Act to enable subscribers in the fund to shift to NPS, as was promised by Jaitley in the Budget for 2015-16. The amendment is stuck on a labour ministry demand that NPS subscribers be also allowed to shift to EPF, where there is presently a tax advantage.
At the outset, it seems NPS gives better returns even in debt instruments. For example, the EPF gave 8.69 per cent average annual return for the five years till 2016-17, while NPS gave a little over 13 per cent in the case of any of its schemes — equity, government debt or corporate debt. However, this is because of different accounting methods adopted by EPF and NPS. The former follows what is called the hold to maturity and accrual based accounting norm; NPS uses a market valuation norm. For instance, if NPS and EPF buy a government security at a coupon rate of 6.5 per cent annually for 15 years, EPF will declare 6.5 per cent interest after the first year; NPS will take into account the decrease in interest rates. If because of the latter the securities turn five per cent more attractive, it would add this to the coupon rate and say the return is 11.5 per cent.
However, both NPS and EPF have to hold the security till maturity. So, for a subscriber, the security would actually give the same return. However, equity gives an added advantage to NPS. While government staffers may opt for an investment plan where 50 per cent could be invested in equity, private sector employers may choose one where 75 per cent could be used for equity. In EPF, only up to 10 per cent of the incremental fund could be invested in exchange-traded funds. U K Sinha, chairman of the Securities and Exchange Board of India also gave suggestions for the equity markets. He did not elaborate on what he’d suggested. “A number of issues and areas were discussed…The market is being well regulated, I don’t see any specific risk at this stage,” he said.
A day after asserting that tax revenues for the current financial year would exceed the Budget Estimate, the finance ministry painted a rosy picture of the macro economy after demonetisation. Chairing the FSDC meeting, Jaitley said the world economy was fragile but India appeared much better placed, with improvement in its macro fundamentals. He said the government’s measures to eliminate the shadow economy and tax evasion were expected to have a positive impact on both Gross Domestic Product and fiscal consolidation in the long run. Among other financial sector regulators, Reserve Bank (RBI) governor Urjit Patel and insurance sector regulator T S Vijayan attended the meeting. FSDC also reviewed the present status of non-performing assets in banks and measures taken by the government and RBI to address the issue. Arvind Subramanian, the chief economic advisor, made a presentation on the state of the economy.  –[06-01-2017]

10.  Disclosure of candidates’ income source be made must: EC to SC
January 6, 2017

The Election Commission has told the Supreme Court that it must be made mandatory for the candidates to disclose their sources of income along with that of their spouse and dependents at the time of filing nomination to bring transparency in the election process. The poll panel also sought amendment in the Representation of the People Act to make sure that a candidate is disqualified not only when he has an existing contract with the government but also when any member of his family has a similar financial agreement. In an affidavit before the apex court, the EC said it is necessary for “healthier democracy” that voters get to know the sources of income of aspiring candidates and family members.
Under the current law, a candidate is required to disclose details of assets and liabilities for self, spouse and three dependents in Form 26 while filing nomination paper but not the source of income. “The existing format of the poll affidavit does not give any information in respect of the sources of income of the candidate and his family members to enable the electors to form an informed choice as to whether the increase of the income of the candidate from the previous election is reasonable or not,” the commission said.
The submission came in response to a PIL filed by NGO Lok Prahri seeking the court’s direction to amend the Representation of the People Act to make it mandatory for candidates to disclose the sources of their income and that of their family members. The NGO has also sought a direction to the Centre to bring an amendment in the law to disqualify a lawmaker if he has a share or interest in a firm that enters into a business contract with the government or a public company. “The increasing role of money power in elections is too well known and is one of the maladies which sometimes reduces the process of election into a mere farce by placing some privileged candidates with financial resources in a distinctly advantageous position as compared to other candidates. “The result of such an election cannot reflect the true choice of the people. The system also sometimes deprives qualified and able persons the prerogative to represent masses,” the panel said.
The commission also told the court that the law should be amended to provide punishment of a two-year jail term to candidates for filing a false affidavit, enhancing it from the present six-month period. The panel also suggested that a provision should be made for disqualification of an elected representative in the event that his family member or any of the companies associated with him having business interest in government.  –[06-01-2017]

11. Govt Can’t Unveil Schemes for Poll-bound States in Budget
January 5, 2017

The government can go ahead with presenting the Union budget on February 1 even though elections will be held in five states over the next two months. The government will need to follow the Model Code of Conduct and not announce any scheme or incentive for the poll-bound states, a government official told ET. “Election code of conduct will have to be followed and there cannot be any announcement specific to the states that are going to polls,“ the official said.
The government is likely to present a merged general and railway budget on February 1 in line with a plan to complete the process before the new financial year starts on April 1so that spending starts immediately. Under the current timeline, spending starts almost after the first quarter of the financial year is over.
The Election Commission, while announcing the poll schedule for Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur, said it will review the decision to present the budget on February 1. Polls in some of these states start on February 4. The Model Code of Conduct comes into force with the announcement of the schedule.
Political parties, including the Congress, the Left parties and the Samajwadi Party, have asked the Commission not to allow the Central government to present the budget as scheduled because sops that could be announced may influence voters.
“The Commission has received one representation sent by some political parties,“ Chief Election Commissioner Nasim Zaidi said.
“This representation is with regards to presentation of the budget. The Commission is examining this representation and in due course of time will take a call on this.“
Asked about this demand of political parties, finance minister Arun Jaitley said: “This is a constitutional requirement…There is no tradition like that.“
He said if demonetisation was not so popular, political parties shouldn’t be worried. He said the object of an early budget is so that spending can start from April 1. – [5-1-2017]

12. Tax kitty to exceed Budget estimate, says Jaitley

January 5, 2017
While some states have complained of declining tax revenues due to demonetisation, the Centre is hopeful of exceeding its Budget Estimates (BE) for 2016-17 in both direct and indirect tax collections. It has reiterated the decision to advance the Budget presentation date to February 1, despite objections. “We will end this year with higher revenues for both direct and indirect taxes compared to the estimates,” said Finance Minister Arun Jaitley after the Goods and Services Tax Council meeting and pre-Budget consultation with state counterparts.
The states raised concern over declining revenues and sought relaxation in the Fiscal Responsibility and Budget Management (FRBM) limit, beside central support to revive labour-intensive industries. To a query, Jaitley said the Reserve Bank (RBI) would remove the current restrictions on cash withdrawal after assessing the situation. He ruled out a change in the conditions barring anyone other than non-resident Indians (NRIs) and those returning from abroad from depositing the junked notes in select central bank branches. “Actions are taken in phases and so are relaxations,” he said on when the cash withdrawal restrictions could be ended. Collection Indirect tax collections — central excise, service tax, customs — were up 26.2% in the April-November period (first eight months of this financial year) at Rs 5.52 lakh crore, as against the full year’s target of 10.8%.
Excise duty collections rose 43.5% in the first eight months (April-November) of 2016-17 to Rs 2.43 lakh crore, against the BE of 12.15% rise. Service tax collections made the kitty richer by 25.7% at Rs 1.6 lakh crore in the eight months, against the 10% projected in the BE. Customs collections rose by 5.6% at Rs 1.48 lakh crore in the first eight months; the BE had projected 9.78% more in FY17. Till December 19, the net increase in direct taxes was 13.6% after factoring in the refunds, already higher than the Budget target of 12.5%. Growth in corporate tax collection was 8.75% till December 19, against the BE’s 9.04% for the full year. Personal income tax yielded 23.9% more till December 19, against a BE rise of 18.1%. FRBM Most states pressed for relaxation in FRBM legal limits. Jharkhand sought it by one percentage point, as did Andhra, from the current year’s fiscal deficit limit of three% of GSDP.
Delhi finance minister Manish Sisodia said his revenue fell 24% last month. However, Haryana (where the Bharatiya Janata Party also rules, as at the Centre) said tax revenues remained steady, “the same as last year, rather better. There has been no visible adverse impact of demonetisation”, said Abhimanyu, finance minister.Budget To a query regarding opposition parties demanding postponing of the Budget presentation date due to the coming state elections, Jaitley said, “They say the popularity of demonetisation is very low. Then, why are they worried about the Budget?” He said the reason behind advancing the presentation date is that actual expenditure must start from April 1, when the financial year begins.
To someone asking if the Budget for 2012-13 had not been postponed due to state elections, he said, “This is not a tradition every time. Immediately before the Lok Sabha elections, an interim Budget is presented. This is a constitutional necessity.”Chief Election Commissioner Nasim Zaidi said various political parties had represented on the February 1 presentation of the Union Budget, while the poll campaign was still on in five states. “The Commission is examining this representation,” he told reporters. The Congress, Left parties and Samajwadi Party are among those which have written to the EC. Congress spokesperson Ajoy Kumar said the Centre should present a vote-on-account and a full Budget later.
Communist Party of India (Marxist) chief Sitaram Yechury said an ‘early Budget’ was a bad idea, as full data would be there only for the financial year’s first two quarters. The Economic Survey coverage would be likewise. Such a Budget-making exercise was bound to lead to “looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies”.Tamil Nadu seeks revival of Nokia unit The government of Tamil Nadu on Friday sought the Centre’s support for revival of Nokia Corp’s erstwhile factory in Chennai, during the pre-Budget consultation with the Centre.”In (the Centre’s) Make in India (programme), they need to adopt this and support this transition,” state education minister K Pandia Rajan said after the meeting. Foxconn is learnt to be in talks with Nokia to revive the unit, seeking a prior waiver on tax liabilities and resolution of legal issues concerning the factory. “For the Nokia-Foxconn deal to go through, the central government needs to unfreeze the assets. It has a key role in this,” the minister said.  –[05-01-2017]

13.  I-T Dept Asks Tax Sleuths to Resolve Disputes in 30 Days
January 4, 2017
In what could come as a good news for taxpayers in the new year, the income-tax department has asked its officials to resolve their grievances, within 30 days time.
The department’s new wing called the ‘Directorate of Tax Payer Services’ has asked all the regional heads of the I-T to ensure that “ there are no grievances aged more than 30 days pending at any level” pertaining to complaints of refunds, PAN issues and other Income Tax-related subjects.
In a communication, the directorate has also underlined the fact that Prime Minister Narendra Modi during his review meetings in this regard has “stressed upon adhering to the timeline of 30 days for the redressal of a particular grievance”.
“one of the major reasons for delay in the grievance redressal is failure to identify competent officer to redress the grievance and lack of knowledge of recent circulars or instructions,” the communication said, adding if the person (tax official) dealing with the grievance identifies the competent I-T authority, “ a lot of time can be saved”.
The directorate has also directed the taxman that in case the grievance does not pertain to the authority directed by the CBDT, it “should be transferred back in not more than five days time.”
The directorate, nodal wing for all taxpayer grievances pan-India, has suggested that the official handling the grievance should give “due attention to the grievance at hand” and ensure action without any delay. – [4-1-2017]

14. Taxation won’t Come in the Way of Foxconn-Nokia Deal, says Official

January 4, 2017

India’s taxation regime will f not come in the way of Taiwanese device maker Foxconn Technology’s plans to i take over Finnish mobile company t Nokia’s closed manufacturing facility in TamilNadu’s Sriperumbudur, a top government official said.
“Tax is not an overriding factor here t (Foxconn-Nokia deal) while India’s c talent pool plays a critical role,“ Ministry of Electronics and IT (MeitY) secretary Aruna Sundararajan said.“In my view, taxation is not going to be a l deciding factor.“ t Foxconn, the world’s top contract manu(facturer, and Nokia have been discussing plans to revive the latter’s shuttered manufacturing unit located barely 40 km from Chennai, but any deal hinges on i clarity around whether tax sops will continue even after implementation of the goods and service tax regime. In addition, c Foxconn has made it clear that it won’t bear the tax liability, which was slapped on Nokia, which led to the factory being frozen and subsequently closing down.
Sundararajan said there are enough incentives for companies to manufacture in India and the government will ensure taxation issues aren’t a hurdle.“In the long term, productivity and relevant skill sets, including ready availability of technical workers, makes a difference and there is a natural inclination from multinationals to make a manufacturing presence in India,“ she said.
Sundararajan said the companies willing to start production in the country typically look at return on investment (RoI), which India offers. MeitY’s top official believes that Nokia, which had set up the Sriperumbudur manufacturing unit in 2006, was among the top companies in terms of productivity with the lowest production cost in the world back then, and it makes a compelling case for other companies too to come and make in India. – [4-1-2017]

15. Startups Brace for Legal War with I-T

January 4, 2017
Startups that have been ordered to pay tax despite valuations being marked down in recent funding rounds are challenging the demands, complaining that the move runs counter to the government’s campaign to encourage entrepreneurial spirit.
With startup fever having waned over the past year or so amid concerns over profitability and competition, valuations have declined sharply. Last month, the tax department challenged such reductions at about 100 startups and issued orders seeking 33% tax at the elevated levels that prevailed earlier.
Some startups have moved the income-tax tribunal against the notices while others have approached their advisers and could seek legal recourse in the coming days.
Lets Recycle, an Ahmedabad based and Aavishkaar Ventures-backed waste management startup, was among those to get the tax demand and has challenged it at the Income-Tax Appellate Tribunal. “Entrepreneurs don’t understand I-T notices as they have to struggle daily to improvise business processes,“ said Lets Recycle founder Sandeep Patel. “When I-T (income tax) acts this way, investors will be sceptical to invest, entrepreneurship will never be born and startups will never become (large) enterprises.“ He said his startup directly or indirectly employs 1,650 waste pickers, among them 200 from the weaker sections of the society.
Prime Minister Narendra Modi launched the Startup India programme in January last year as part of a campaign to create a conducive ecosystem for such companies to boost job creation.
The tax demand has been made for the assessment years 2013-14 and 201415 under Section 56(2)(vii)(b) of the Income-Tax Act, 1961. Experts said the Section was actually introduced to curb money laundering and was being wrongly aimed at genuine investment in startups.
ET reported on June 2 that startups with marked-down valuations may face tax notices. The Central Board of Direct Taxes (CBDT) subsequently issued a notification exempting government-registered startups on June 14.
“As feared, the tax officers have started challenging all investments prior to this amendment,“ said Amit Maheshwari, partner, Ashok Maheshwary and Associates LLP. “Tax officers have challenged the valuation methodology , assumptions and projections duly certified by merchant bankers or chartered accountants and this could be the ground on which this would be challenged by the startups.“
While some startups weren’t inclined to seek legal recourse, their investors are said to be nudging them to do so, said experts. According to people aware of the matter, SAIF Partners, a venture capital fund, is seeking legal opinion after some of the startups in which it has invested faced tax demands. An email sent to SAIF Partners and an SMS to CEO Ravi Adusumalli did not elicit any response.
Other investors are also likely to push companies to challenge the tax demands.
Those that have been sent notices will have to pay by March end or challenge the demand.
The tax department’s move appears to be antithetical to the government’s encouragement for startups.
“The government had allowed three years’ tax break for startups and you are defying your own Prime Minister’s verdict on startups,“ said Sumit Mehrra, CEO, Green Umbrella Investment Advisory, and an angel investor. “The whole logic is defeated when you are taxing a startup on perceived valuation. Taxing actual profit or gain is practical; taxing on notional gain will be obviously challenged by the startups.“
In some cases, startups are looking to set off losses against the tax demand. However, this could trigger a new set of problems for the startups, experts said.
“Setting off of accumulated tax losses could lead to the tax demand on perceived overvaluation in many cases and the startups may still be penalised for concealment of income,“ said Maheshwari. – [4-1-2017]

16.  Interest Rate on Small Savings Plans Unchanged
January 3, 2017
The government has kept the interest rate on small savings schemes such as PPF and Kisan Vikas Patra unchanged for the January-March quarter, going against the expectations that the rates will be cut. Investments in the popular public provident fund (PPF) scheme will continue to fetch an annual interest rate of 8%, the same as 5-year National Savings Certificate, the finance ministry said in a notification. With banks cutting the fixed deposit rates following surge in deposits due to demonetisation, the interest differential with small savings schemes will widen making the latter more attractive.
Small savings rates are revised every quarter based on the movement in yields on government securities in secondary market. Kisan Vikas Patra (KVP) investments will continue to yield 7.7% per annum and matu re in 112 months. Sukanya Samriddhi Account Scheme, scheme for the girl child, will continue to give out 8.5% annually while it will be the same as 8.5% for the 5-year Senior Citizens Savings Scheme.
A savings deposit will fetch 4%, same as earlier while term deposits of 1-5 years will offer 77.8% that will be paid quarterly .The 5-year recurring deposit will continue to earn 7.3%. Most banks are offering less than 7% annual return on their deposits. The differential will keep small savings schemes attractive, but that should not worry banks flush with deposits due to the demonetisation.  –[03-01-2017]

17.  Startups Likely to Get Tax Benefits in Union Budget
January 2, 2017
Prime Minister Narendra Modi’s key Startup India programme may get a boost in the upcoming budget with the industry department drawing up a list of tax concessions on employee stock options, unlisted securities and convertible instruments. The union budget is expected to be announced on February 1.
The push comes amid concerns that the startup movement in India was losing steam and there hasn’t been a significant improvement in ease of doing business. The Department of Industrial Policy and Promotion (DIPP) has proposed that ESOPs for startups be taxed at the time of sale, when they have greater liquidity to pay taxes and the instruments get a fair valuation.
DIPP has also said that the period of long-term capital gains for unlisted securities be reduced from the current limit of 24 months, keeping in mind that investing in startups is risky and subject to a higher rate of tax. “We are trying to address various tax and regulatory issues which the startups are facing currently, hoping that the budget will address some of these issues,“ a senior government official said, requesting anonymity.
Industry agrees with the need for incentives.
“Startups move away from India because of the current tax regime. Some of these changes are simply hygiene factors and not concessions to help startups stay and floua,“ said Sharad rish in India,“ said Sharad Sharma, cofounder of think tank iSPIRIT.
The long-pending demand of increasing the tax holiday period for startups to seven years from three years has also been forwarded to the finance ministry by DIPP.
The tax holiday was announced to help startups meet cash constraints and limited avenues of finances available in their early days. DIPP is also in the process of finalising guidelines for a credit guarantee fund scheme to increase the availability of finance for startups.
The Startup Action Plan announced by Prime Minister Modi in January 2016 said a credit guarantee mechanism through the National Credit Guarantee Trust Company or the Small Industries Development Bank of India (Sidbi) would get funding of Rs. 500 crore annually for the next four years.
The government had announced several incentives for startups at the launch of the Startup India Action Plan such as a three-year income tax holiday subject to non-distribution of dividends and capital gains tax exemption for investments in newly formed manufacturing micro, small and medium enterprises by individuals. Only companies registered after April 2016 can apply for the tax benefits. DIPP also announced a tatkal service for startups for filing patents.
Under the faster clearance route, application fees for individuals and startups have been kept at Rs. 8,000 while for companies, it could be as much as Rs. 60,000. – [2-1-2017]

18. Raise I-T Exemption Cap to Rs 5 L’
January 2, 2017
Finance Minister Arun Jaitley should double the basic income tax exemption limit to Rs. 5 lakh per year and raise the ceiling for claiming deduction under Section 80C to Rs. 2.50 lakh, according to a survey by tax consultant Deloitte.
Almost all respondents want the I-T exemption limit to be raised substantially while 58% of the respondents were in favour of raising it to Rs. 5 lakh.
“It will place more money in the hands of consumers resulting in increase in demand pick-up. Also, the increase in the slab limit will kick-start savings which will ultimately lead to increase in investment in the system,“ stated a Pre-budget Expectations Survey Report by Deloitte.
It said that 71% respondents want the limit of the Section 80C to be increased to Rs. 2.50 lakh, from Rs. 1.50 lakh. “Given the increase in income levels and inflation, the existing limit is low. Increase in limit will help channelise household savings into productive avenues such as insurance, provident fund, equity and the like which will in fully exempted.
Currently, NPS is subject to income tax under the EET (Exempt Exempt Tax) regime-withdrawals from NPS are taxed to the extent of 60%.
However, this is not in parity with other pension schemes such as provident fund, which is under the EEE regime. “The government has positioned NPS as an alternative to PF. Therefore, to bring parity and incentivise employees to be part of NPS, it must be brought under the EEE regime,“ the report added.
According to the Deloitte survey, the government has set an ambitious target to boost infrastructure spending and is in need of long-term funds.“Hence, it is an apt time to reintroduce deduction for investment in long term infrastructure bonds as it will provide additional avenue for individuals to make investment and save taxes,“ the survey suggested.
This is expected to provide funds to bankroll various infrastructure projects. A majority of the respondents indicated that the deduction for investment in infrastructure bonds should be introduced with a limit of Rs. 50,000. – [2-1-2017]

19. India, Singapore revise tax treaty
December 31, 2016
The government signed a pact with its Singapore counterpart on Friday, amending their decade-old tax treaty, gaining taxation rights over capital gains. This is the third double taxation avoidance agreement (DTAA) amended so far this financial year with a zero or low tax jurisdiction. The other two were with Mauritius and Cyprus. According to tax consultants, Mauritius would be the most attractive source of investments into India for debt funds and Singapore for equity investments. Mirroring the revised IndiaMauritius DTAA, the government has some grandfathering provisions (having the old rule continuing to apply for some existing situations, with the new one for all future cases) and a two-year transition benefit to investments from Singapore. The revised pact will take effect from April 1, 2017. For two years from that date, capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. The short-term rate is 15 per cent at present. The full rate will apply from April 1, 2019.
“2016 has been historic, with all three tax treaties amended… The treaties were misused to round-trip domestic black money and bring it back to India through these routes. There has been a significant battle by India against black money. It is a happy coincidence that by amending these treaties, there has been a burial to the black money route that existed,” said Finance Minister Arun Jaitley on the revised DTAA. Mauritius and Singapore are the top two sources for foreign direct investment to India, about half of the total direct flow. Total FDI from Mauritius over the past decade and a half is USD 95.9 billion. That from Singapore is USD 45.8 bn The concessional rate of 50 per cent would be subject to fulfilment of conditions of Limitation of Benefit (LOB), an expenditure of at least Rs. 50 lakh in Singapore in the previous financial year. It is Rs.27 lakh in the case of Mauritius.
“The Singapore route was widely used for treaty shopping. Investors were used to create shell companies, claiming it to be a resident of Singapore. This loophole has been plugged, to cover for revenue loss and black money via this route,” said Rakesh Bhargava, Director, Taxmann. The rate of withholding tax on interest for Singapore has been retained at 15 per cent, as against 7.5 per cent in the case of Mauritius, making the latter a preferred source of investment into India by debt funds.  –[31-12-2016]

20.Easwar panel submits 2nd report on I-T laws

December 31, 2016

Justice R V Easwar, who heads a high-level committee on simplification of income tax laws, on Friday submitted his second report to Finance Minister Arun Jaitley. To simplify the provisions of the Income-tax Act, 1961, a Committee under the chairmanship of Justice Easwar was constituted on October 27, 2015. The Committee was entrusted with the broad objectives of studying and identifying the provisions/phrases in the I-T Act that result in litigation due to misinter pretations.   –[31-12-2016]

Published by Business So Simple

Hi, I am business consultant working with a team of Chartered Accountants, Company Secretaries, Lawyers & MBAs. I am promoter of " Make Your Business So Simple" "Make Education So Simple" Make Life So Simple" Make Legal Affairs So Simple".

3 thoughts on “Income Tax Updates (31 Dec 2016 to 07 Jan 2017)

  1. Dear Jolly,Check out your salary structure-tax free allowance(HRA, Children,Transport etc.) perquisites (Motor car, Medical etc.) & reimbursement. Besides also review your tax saving investment (EPF,PPF, Tuition fees, NSC, Tax saving deposits, Insurance premium etc), interest on house property etc.We will assist you after reviewing your salary structure.Now you can able to check jurisdiction of your PAN after login


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