Non-resident investors who do not provide permanent account number will no longer have to face higher tax deduction at source.
The income tax department has eased norms for non-resident investors, who will not be subjected to a higher rate of 20% tax deduction at source or TDS on their interest earnings, royalty or technical fee if they furnish some personal details and tax residency certificate from their home country and a few other easily available documents.
“Provisions of Sec 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset,” the Central Board of Direct Taxes said in a notification. Section 206AA of I-T Act provides that if an investor does not have permanent account number or PAN, he or she will be liable to withholding taxes on payments at the rate of 20% or as per tax treaty with the country where investor is resident, whichever is higher.
This clause forced non-resident investors to seek PAN, making investment process difficult.
Under the new rules 37BC, investors will instead need to provide their personal details such as e-mail and contact number, residential address and tax residency certificate from the government of their home country.
In case the country does not provide tax residency certificate, the investor can provide tax identification number or any other unique identification number issued by the country of residence. This will spare investors the hassles of securing PAN in India and attendant compliance that comes with having this number.
Finance minister Arun Jaitley had said in his budget speech in February that some concession would be provided in this regard. “Non-residents without PAN are currently subjected to a higher rate of TDS. It is proposed to amend the relevant provision to provide that on furnishing of alternative documents, the higher rate will not apply,” Jaitley had said, without spelling out the details.
The Central Board of Direct Taxes (CBDT) has made it clear that the 1 per cent tax collection at source (TCS) — introduced in this year’s Budget — will apply only to the cash component and not the entire sale consideration. This has been conveyed in a clarificatory circular issued by the CBDT on Friday.
To curb the cash economy, Budget 2016 had introduced a provision in income tax law requiring the seller to collect 1 per cent tax at source from the purchaser on the sale in cash of certain goods or provision of services in excess of ₹2 lakh.
Q&A format
The circular — in the form of question and answer — has been issued to clarify the applicability of the provision where the sale consideration received is partly in cash and partly in cheque
TCS will be applicable only on the cash component of the sales amount, and not on the whole of sales consideration, the CBDT circular said.
For instance, if goods worth ₹5 lakh are purchased for ₹2 lakh in cheque and ₹3 lakh in cash, 1 per cent tax will be levied only on ₹3 lakh.
Also, in cash-and-cheque transactions where the cash component is less than ₹2 lakh, there won’t be any TCS, the CBDT clarified. Further, TCS will not be levied if the cash receipt does not exceed ₹2 lakh, even if the sale consideration exceeds ₹2 lakh, said the circular.
Amit Maheshwari, Partner at CA firm Ashok Maheshwary & Associates, said the CBDT has rightly restricted the 1 per cent TCS to the cash component. This is in line with the Centre’s objective to curb the cash economy and target the expenditure side of black money, he noted.
Rahul Jain, Partner, Nangia & Co, said the Centre’s constant efforts to clarify the law and avoid possible disputes are heartening. In the absence of clarification, various local trade associations, head offices of stores selling high value items, etc had taken a conservative position.
“While it is excellent to see the Centre pulling all stops to nip disputes in the bud, one wishes the law was drafted better to avoid confusion in the first place,” he added.
Income Tax Department has asked its officers to make “all out efforts” to attract potential declarants under the domestic black money window by assuring them of confidential and hassle-free disclosures.
In order to give wide publicity, the CBDT has also suggested putting up posters about the Income Declaration Scheme-2016, at places frequented by potential declarants, like club houses, posh markets, showrooms of high end products.
The four-pronged strategy prepared by the CBDT for the success of the scheme, includes single point contact to ensure confidentiality, setting up of facilitation centres across the country, giving wide publicity and monitoring at the highest level.
Finance Minister Arun Jaitley in Budget had announced a four-month window under the Income Declaration Scheme 2016. The scheme, which opened on June 1, allows domestic black money holders to declare ill-gotten wealth and come clean by paying a tax and penalty totalling 45 per cent.
“All out efforts are to be made to ensure the targeted taxpayers are well informed about the scheme and are adequately guided and facilitated for filing declarations so that they can avail maximum benefits under the scheme, which is under highest consideration of the government during the coming months,” the CBDT said in an office memorandum.
In order to ensure confidentiality of the declarants, the Central Board of Direct Taxes (CBDT) has said only Principal Commissioner or Commissioner Income Tax should act as a “single point of contact” for interacting with the declarants.
“Such Pr CIIT/CIT should be the one and only point of contact with the respective declarant. The idea is to ensure the declarant is not exposed to multiple persons in the office so that his confidentiality is not compromised and he is able to file the declaration in a hassle free manner,” it added.
The detailed action plan for the success of black money disclosure scheme was discussed at the annual conference of tax administrators last week.
In its strategy, CBDT has asked Principal Commissioners and Commissioners to provide all “procedural facilities” at the time of disclosure so as to avoid additional interaction with anyone else in the office.
“All records related to IDS-2016 must be kept in the personal custody of the respective Principal CIT /CIT officer in a safe and secure manner,” it said, adding officer with “good inter-personal skills” be deputed as ‘Facilitation Officer’ to answer queries related to the scheme.
In every city where Principal Commissioner is stationed, a “facilitation centre” in the nature of help desk may be opened for disseminating information about the scheme.
The CBDT has also asked its senior officers to hold “frequent meetings” with trade and industry bodies and professional associations, besides organising town halls and seminars.
In order to step up publicity for the scheme at local level, tax officers should disseminate information through posters in regional languages, stalls at local fairs.
In order to ensure monitoring at the highest level, CBDT said ‘IDS Banner’ will become functional next week on its website where the officers would upload their meeting details.
This will help compare the progress made in organising the campaign.
Last year the government came up with a similar scheme for persons having unaccounted black money abroad. Disclosures during that window were charged with a total tax and penalty of 60 per cent.
A total of Rs 4,147 crore of undisclosed wealth was declared during the 90-day foreign black money compliance window that ended September 30. At 60 per cent (30 per cent tax and 30 per cent penalty), the government got a net tax of Rs 2,500 crore from the declarations.
In order to cripple and check the activities of wilful tax defaulters, the Income Tax department has decided to “block” Permanent Account Number (PAN) of such entities, get their LPG subsidy cancelled and take measures to ensure that they are not sanctioned loans.
A number of such measures have been mooted by the tax department, to be undertaken this financial year, in order to curb the menace of large-scale tax avoidance and evasion.
As per a strategy paper prepared by the department, also accessed by PTI, the taxman will block PAN in such a way “that these defaulters are not sanctioned any loans or overdraft facility by public sector banks, as the same is bound to become non-performing assets”.
Further, it said, “Ministry of Finance can be suggested to withdraw facility like LPG subsidy which is directly credited to the bank accounts of the said defaulters.”
This step, the strategy paper said, will act to “disincentivise” the defaulters.
The taxman also proposes that the identities of such blocked PANs be circulated to the Registrar of Properties “with a request for not allowing any registration of immovable properties where such PANs are involved.”
Such defaulters’ information has also been recommended to be circulated across tax offices so that their activities loans or government subsidy can be plugged country-wide.
The department has also decided to subscribe to the Credit Information Bureau Limited (CIBIL) data, on a possible payment basis, to check out the financial activities of defaulters and undertake action against them for recovery and freezing of assets.
CIBIL is an agency to collect and maintain records of entities’ payments pertaining to loans and credit cards.
The department, beginning last year, has also started to ‘name and shame’ large tax defaulters (over Rs 20 crore defaults) by publishing their names and other credentials in leading national dailies and on its official web portal.
Till now, 67 such entities have been put in public domain by the department.
The IT department, beginning this financial year, has also decided to publicly name all category of taxpayers who have a default of Rs one crore and above.
“Tax default is a major menace that the department is grappling with. These new measures are aimed to curb these instances in the right earnest,” a senior IT official said.
Small businesses with a total turnover of up to Rs 2 crore will not be required to get their accounts audited if they opt for presumptive taxation scheme, the finance ministry said on Monday.
“The higher threshold (up to Rs 2 crore) for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD,” the ministry stated.
Section 44AB of the Income Tax Act makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed Rs 1 crore.
“However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1) of the Act, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed Rs 2 crore,” the statement said.
Finance Minister Arun Jaitley in the 2016-17 Budget had proposed to increase the turnover limit under the presumptive taxation scheme under section 44AD of the Income Tax Act to Rs 2 crore “which will bring big relief to a large number of assesses in the MSME category”.
Jaitley had said if the taxpayer opts for the presumptive taxation scheme, he has to remain in that scheme for 5 years.
In a major incentive, startups can now issue shares to investors at higher than fair value without worrying about tax consequences.
The Central Board of Direct Taxes (CBDT) has notified the much awaited tax exemption on investments above fair market rate for startups.
“The exemption provided to startups from the ‘rigour’ of section 56(2)(viib) of Income Tax Act has been long awaited,” Amit Maheshwari, Partner Ashok Maheshwary and Associates LLP, said.
The effect of the CBDT’s notification is that in case a startup gets investment from resident angel investors, family offices or funds which were not registered as venture capital funds, it will not be taxed even if the investment is made in excess to the fair value.
“It has been a long standing industry demand to abolish this Angel tax,” Maheshwari said.
A startup is a company in which the public are not “substantially interested” and conforms to certain conditions as prescribed by the Department of Industrial Policy and Promotion (DIPP) in February this year.
Under Indian tax law, if an Indian company receives share subscription amount from an Indian resident which exceeds the fair value of shares, then the excess amount is taxed as income of the Indian company, said Rajesh H Gandhi, Partner, Deloitte Haskins and Sells LLP.
“The notification now exempts startups from this rigorous provision. This is a welcome relaxation and would ensure that startups can issue shares to investors at higher than fair value without worrying about any tax consequences,” Gandhi said.
A similar exemption already exists for Venture Capital Funds (VCFs).
Maheshwari said this Angel tax still poses threat to earlier investments which could be perceived as being overvalued in light of the declining valuations globally and in India.
Last week, the DIPP has launched a portal and mobile app through which startups can gather all latest updates on various notifications, circulars issued by various departments and different funding agencies.
In January, Prime Minister Narendra Modi had unveiled a slew of incentives to boost startup businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000 crore corpus to fund them.
Prime Minister Narendra Modi (right) and Finance Minister Arun Jaitley at the first Rajasva Gyan Sangam in New Delhi.
Prime Minister Narendra Modi pitched for nearly doubling of tax base to 10 crore assesses while addressing tax officers in the first ever Rajasva Gyan Sangam that kick-started on Thursday.
Modi outlined a five-point charter for tax administrators – RAPID, which stands for Revenue, Accountability, Probity, Information and Digitisation to reform the taxation system in the country.
MODI’S FOUR COMMANDMENTS FOR TAX DEPARTMENT:
Increase tax base to 100 million people from 54.3 million now
Focus on RAPID: Revenue, Accountability, Probity, Information and Digitisation
Ensure simplification and go for total digitisation
Turn Gyan Sangam into a Karma Sangam, so ideas generated here lead to concrete action on the ground
In an hour-long interaction, he urged officers to build a ‘bridge of confidence’ between tax payers and tax officials, stressing on incorporating a sense of trust in the system so that they pay taxes without fear or harassment.
“While there should be respect for the rule of law among all citizens, and even fear of the long arm of the law for those who evade taxes, people should not fear tax administrators,” Modi said in his interaction with tax officers.
Citing the example of the “Give it up” initiative for voluntarily giving up gas subsidy, he said that the tax base too could be increased significantly, provided the tax administrators can demonstrate the leadership to bring about a change.
This is for the first time that the two boards — Central Board of Direct Taxes and Central Board of Excise and Customs — came together for the joint conference. Earlier they held separate conferences with the Finance Minister as the chief guest.
Modi said that tax officials should act like “mentors of taxpayers” and not treat them as “tax evaders”.
“People of India are inherently honest. If you build trust then people will pay taxes and you will be able to achieve the target,” Modi said.
The conclave will deliberate on a host of issues related to taxpayer services and effective implementation of fiscal laws and government policies with discussions around government’s financial inclusion initiatives, ensuring a transparent tax regime for businesses and foreign investors besides issues and challenges being faced by the two tax departments.
Minister of state for finance Jayant Sinha in a briefing after the first session said, “Prime Minister laid out certain goals and objectives for the officials to increase the tax base to 10 crore from 5.43 crore at present.”
Sinha said of the 25 crore households in the country, 15 crore are agriculturalists and hence the remaining 10 crore should be under the tax net.
Modi in his speech said 92% of tax department revenue comes from TDS, advance tax and self assessment tax, while the remaining 8% comes after scrutiny.
He said if 42,000 officials of CBDT are engaged for ensuring direct tax revenue, then the tax net should increase further.
Stating that the country is filled with “aspirational people”, Modi urged the taxmen to take steps so that people find it easier to pay taxes here.
Prime minister emphasized that people in India mostly pay taxes and the number of people who want to evade it is less.
“People don’t have problem in paying tax. So there is no question of tax evasion. The issue is how much cooperative are we in dealing with people. He said you should behave like mentors with the people rather than evader… If you become taxpayer friendly, then taxes will automatically come to you,” Modi said.
During the brainstorming session, he pressed officers to move towards digitisation besides making tax administration better and efficient.
The two-day Gyan Sangam is being attended by close to 250 officers of the rank of Principal Chief Commissioners, Chief Commissioners and Principal Commissioners from CBDT and 170 from the CBEC.
During the interaction, Modi said if someone Googles ‘how to pay taxes in India’, there will be seven crore results. If the question of ‘how not to pay taxes in India’ is put to Google, there would be 12 crore feeds.
The tax officials in their interaction with the prime minister gave a host of suggestions, which included to setting up of National Tax Facilitation Act to regulate basic norms of tax collection.
Ideas and views were expressed on diverse subjects such as digitization, voluntary tax compliance, facilitation for taxpayers, increasing the tax base, upgradation of digital and physical infrastructure for tax administrators etc.
Modi urged officers to turn the Gyan Sangam into a Karma Sangam, so that the ideas generated from this conference lead to concrete action on the ground.
As many as 15 officers from the CBDT and CBEC posed their questions to Prime Minister on various issues being faced by them in their regular work.
The issues included dilemma over whether officials should act as law enforcement agency or taxpayer friendly agency while collecting due taxes from people.
They also raised the issue of voluntary tax compliance, increasing tax base, upgradation of digital and physical infrastructure for tax administrators.
Non-resident investors who do not provide permanent account number will no longer have to face higher tax deduction at source.
