Report of the Standing Committee on the Direct Taxes Code Bill 2010
The Standing Committee on Finance has submitted its 49th Report on the Direct Tax Code 2010 to Parliament today, 9th March 2012. The Committee has noted that it has considered the suggestions of the Income Tax Appellate Tribunal Bar Association.
The salient points of the Report are the following:
(i) On the aspect of whether professionals from related professions can be appointed Accountant members of the Tribunal, the Committee observed that the Ministry’s reasoning for non-inclusion of related professionals in the definition of Accountant Member was a very strict construction of the term and not acceptable. It suggested that the scope should be widened.
(ii) It is noteworthy that on the issue as to whether a Chief Justice of the High Court should be appointed President of the Tribunal, the Committee does not appear to have expressed any reservation on this proposal.
(iii) On transfer pricing, the Committee appreciated that the proposed transfer pricing regulations to determine “arm‟s length price” for international transactions have been specially intended as an anti-abuse measure to prevent tax evasion through transactions with notified non-cooperative jurisdictions or certain specified locations. It emphasized that hardship to tax payers should be avoided by excluding purely commercial transactions between unrelated parties from its purview. It also stated that a monetary threshold should be prescribed for granting exemption from these regulations to small and economically insignificant transactions.
(iv) On GAAR, the Committee noted the apprehensions expressed by different stakeholders on the applicability of GAAR proposals and recommended that the Ministry and the CBDT should seek to bring greater clarity and preciseness to the scope of the provisions. There should be certainty on these provisions so that foreign investors do not become wary of investing in the country. It pointed out that the conditions dealing with “misuse or abuse of DTC provisions” and the “manner applied for the arrangements not for bona fide business purpose” and “lacks commercial substance”, being very widely worded and being subjective, need to be more specifically defined to avoid undue discretion to tax authorities. The Committee pointed out that the onus should rest on the tax authority invoking GAAR and this should not be shifted to the taxpayer. The Committee made specified certain aspects that neeeded to be carefully considered before finalizing the GAAR proposals.
(v) The Committee has suggested raising the income tax exemption limit to Rs 3 lakh and also hiking deduction on savings to Rs 2.5 lakh.
(vi) The Committee has suggested that the limit for total tax saving deductions, which include investment in provident fund, life insurance, children education and infrastructure bonds, be raised to Rs 2.5 lakh from Rs 1.2 lakh. At present, investments up to Rs 1 lakh in specified instruments are deducted while calculating the tax liability. In addition, investments up to Rs 20,000 in infrastructure bonds are also exempted from tax.
(vii) The Committee has stated that the wealth tax ceiling should be substantially increased to Rs 5 crore from Rs 1 crore currently to reflect the current realities, and beyond that limit, tax should be payable on slabs basis.
(viii) The Committee has suggested that the proposed 60 days stay for non-resident Indians to retain their non-residential status be relaxed and restored to the existing 182 days, subject to conditions.
(ix) The Committee has recommend that the definition of “house property‟ should be re-drafted so that the distinction between commercial and non-commercial property is clearly brought out.
(x) No change in the 30 per cent tax rate on corporates proposed.
(xi) The Committee has recommended that the ministry could explore the possibility of abolishing the Securities Transaction Tax (STT), while correspondingly calibrating the Capital Gains Tax regime – both short term and long term. Accordingly, the distinction between listed and unlisted securities should be removed. It should also be ensured that companies do not escape paying capital gains tax on the basis of Double Taxation Avoidance Agreements (DTAAs). A large number of foreign institutional investors invest through Mauritius to avoid paying tax on capital gains in India.
Download Report of Standing Committee on Direct Tax Code Bill 2010 (1.7 MiB, 6,422 hits)
The provisions of sec.44AD are to correspondingly be altered and should made applicable only to retailers. Further, the % of deemed income shall be applied 8% if the turnover exceeded Rs.40.00 but below Rs.70.00 laksh and 5% in cases of turnovers between Rs.70.00lakhs and Rs.1oo.00 lakhs. Otherwise there would not be any favor to the assessees despite upward revision of limits and tax irrationally to those assessees who did not opt to get their accounts audited. Generally the wholesalers and distributors would be allowed gross profit net of @3% to 5% and cannot be expected to get 8% net profit. Hence, necessary amendment is required.
The threshold limits of Rs.40.00/Rs.10.00 lakhs were fixed for tax audit under sec.44AB through Finance Act 1984 when the cost inflation index was 125. These limits were all through static for almost 25 years until they have been casually enhanced exactly by 50% through Finance Act 2010, despite other financial limits like basic exemption of income for tax fold, housing loan int., etc. increased number of times. Now through F.Bill, 2012, the tax audit limits revised to only Rs.100.00/20.00 lakhs when the cost inflation index is 785, which is more than 6 times to the CII for the year 1984.
Considering this parameter the limits would at least be fixed at Rs.200.00/40.00 lakhs. In fixing these limits there will be no financial commitment nor loss to exchequer; moreover it will be helpful to small traders in saving tax audit expenses and time.
To proposal to raise income tax exemption limit to Rs 3 Lakh is a welcome move on the part of the committee. However I feel that raising wealth tax ceiling to Rs 5 crore is uncalled for. What justification there is in exempting the very rich in a country where millions still live below the poverty line?
Is it not a sad state that we the people keep begging for increasing the tax deductible savings from Rs 1.2 lakhs pa to Rs 2.4 lakhs pa or whatever the powers would like to dole out!
What holds back the indexation of such deductions to a particular standard like the Gold or USD or PPP. What was the value of Gold when the limit of Rs 1.00 lakhs was introduced and where does the money value stand today. For that matter, the absolute limit on investments in PPF were introduced at Rs 60k somewhere in eary 1960s and the FinMin was kind enough to increase the limit to Rs 70k after about 3 decades. Possibly, if the limits are indexed to a transparent benchmark be it Gold or whatever, it may give a feeling that the decision making is taken away from the decision makers.
Unfortunately committee has not addressed to misuse of powers
by tax officials either to prevent or punish. Tax payers are left to
fend for themselves from harassment which is dangerous for rule
of law.
A first reading of the Report is undoubtedly bound to have left anyone with an impression that the Standing Committee has certainly made a sincere attempt to, by and large, cover all such areas of common concern; also given its leading suggestions which could help the dominant objective of the whole exercise viz. simplification of the extant law, and in turn, check proliferation , if not prevention, of the most dreaded ‘litigation’.
Be that as it should, as is observed from the minutes of the concluding meeting, it all depends on to what extent the SC’s suggestions/recommendations are going to be accorded, by the finance ministry as well as the law ministry, serious considerations and effected in the final draft before its submission to the Parliament. As such, none can, it seems, be sure to assert on what is eventually in store for among others the taxpaying public, in its inclusive sense.