Direct Tax Updates:
- LTCG from penny stocks cannot be treated as bogus if documentation is in order and no fault found by Assessing Officer. Chandra Prakash Jhunjhunwala Vs DCIT (ITAT Kolkata).
- The task force to overhaul the nearly 60-year-old Income Tax Act has recommended retaining the long-term capital gains (LTCG) tax and the securities transaction tax (STT), while abolishing the dividend distribution tax (DDT). The panel has instead suggested imposing tax on the person receiving dividends, sources in the know said. The proposed move to withdraw the DDT would help encourage investments by addressing multiple taxation of income and bringing down the effective tax rate on companies, which is among the highest in the world, the sources said. The eight-member panel on the direct taxes code (DTC), which submitted its report to Finance Minister Nirmala Sitharaman last week, has proposed a range of reforms for personal income tax by rationalising the highest tax slabs of 20 per cent and 30 per cent to improve compliance.
- Although the market has been demanding the withdrawal of the LTCG tax reintroduced in last year’s Budget, the panel, led by Central Board of Direct Taxes Member Akhilesh Ranjan, is learnt to have taken a view that no preferential treatment must be given to any class of investors. The LTCG tax is levied on gains arising from the transfer of listed equity shares exceeding Rs 1,00,000, at 10 per cent. Besides, the case for retaining the STT has been its simplicity of collection and assured revenues. The STT is a direct tax payable on the value of taxable securities transactions done through a stock exchange.
- It is levied at 0.1 per cent of turnover for delivery-based equity transactions, while for intra-day transactions, the STT for purchase is nil, and for sale, it is 0.025 per cent of the turnover. “There is a strong case to do away with the DDT to improve investor sentiment. It is resulting in multiplicity of taxation for companies. Besides, foreign shareholders cannot avail of foreign tax credit as the DDT is not borne directly by them,” said a person in the know. “LTCG should continue to be levied as is the case today to promote parity.”
- The DDT results in the cascading of taxes as companies pay dividends out of profits which are already taxed. The DDT becomes a cost for foreign shareholders as they find it difficult to avail of foreign tax credits for it, which is a credit in home country for taxes paid overseas. It would also help domestic investors as they can take credit of the DDT while paying income tax or refund if their tax liability is nil. “The idea is to go back to the classical way of taxing dividends in the hands of shareholders,” another source said. This will need changes in Section II5 (O) of the Income Tax Act. The current DDT rate stands at 20.55 per cent including surcharge and cess. “This (removing DDT) has been a long-standing demand of the industry as this leads to triple taxation and increased tax cost for investors in general.
- Overseas Investors are not able to take credit of the DDT in their home country and this adds to their tax cost. This also makes India competitive vis-a-vis other countries,” Amit Maheshwari, managing partner at Ashok Maheshwary & LLP said. He said shifting the taxation of dividend to the recipient would enable MNCs to utilise the DTAAs with India more effectively to reduce the tax paid on dividends and also claim a credit of that in the home country. “It is expected that this will also bring down the effective tax rate of India which has been repeated called as very high internationally,” he said. For the personal income tax, the task force has recommended reworking slabs of 20 per cent and 30 per cent to improve compliance.
- The committee was constituted to look into the direct tax system prevalent in various countries, international best practices, the economic needs of the country, and other related matters. The panel also looked into administration and improvement in revenue targeting, data collection and tax intelligence. The high level panel also recommended slashing the corporate tax rate to an even rate of 25 per cent for both domestic and foreign companies.
Indirect Tax Updates:
- CBEC said the designated committee will take a decision within 60 days on declaration made by an assessee for relief under the service tax and excise duty amnesty scheme. Sabka Vishwas – Legacy Dispute Resolution Scheme, 2019, will become operational for four months beginning September 1.
- GST Council will hold its 37th meeting on September 20 in Goa, but is unlikely to consider any rate reduction. Many sectors are clamouring for a rate reduction. They range from automobile to cement to biscuit. Now, if it is done for one sector, it can open floodgates. We should not forget the revenue situation.
- The Reserve Bank of India’s (RBI’s) balance sheet should be strong enough to support banks if there is a need to recapitalise them during a financial crisis, said the report of the committee to review the economic capital framework (ECF) of the central bank. India, with one the lowest sovereign ratings, and not having a reserve currency to boot, should not think that risky actions by the government would still be as safe as advanced economies, said the panel headed by former RBI governor Bimal Jalan. “The fact that ELA (emergency liquidity assistance) operations by the AE (advanced economy) central banks did not result in losses for them should not draw the central banking community into any false sense of complacency about the riskiness of such actions,” the report, released on the RBI website on Tuesday, said. “Had the AEs, which are ‘issuers of reserve currencies’, not followed up their ‘qualitative easing’ programmes with the very significant ‘quantitative easing’, it is possible that their ELA operations could have ended very differently.”
- “The committee, therefore, recognised that the RBI’s financial stability risk provisions need to be viewed for what they truly are, i.e. the country’s savings for a rainy day (a financial stability crisis), built up over decades and maintained with the RBI in view of its role as the LoLR (lender of last resort). Its balance sheet, therefore, has to be demonstrably credible to discharge this function with the requisite financial strength.” To maintain resilience, the committee suggested a relatively smaller transfer than what was anticipated. The RBI board accepted the recommendations and transferred the maximum amount of Rs 52,637 crore as excess provisions that the committee gave leeway to.
- Contrary to expectations, the committee overturned the RBI board’s previous decision of maintaining capital buffer of 3 per cent with medium-to-long term target of 4 per cent. Instead, the committee said the buffer should be between 2-6.5 per cent, and finally suggested that ‘realised equity’, or roughly the contingency fund, should be maintained between 5.5 per cent and 6.5 per cent of the assets, including 1 per cent buffer. Finance Secretary Rajiv Kumar, the government’s nominee on the committee, objected to this, stating that the provision for monetary and financial stability risk should be maintained at 3 per cent.
- According to the committee, a higher transfer is not possible when banks in India are at a vulnerable position. “While large public sector ownership has been seen as a positive in preventing bank runs in the past, the NPA crisis has thrown light on the challenges that arise if a sizable majority of the banking sector looks at the government for recapitalisation,” the committee said.
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Key Due Dates:
- 31 August: INCOME TAX RETURN EXTENDED- Filing income tax for individual and non-corporates [who are not subject to tax audit].
- 30 November: GSTR-9 RETURN FILLING DUE DATE – Annual Return to be filed by Regular Taxpayers filing GSTR 1, GSTR 2, and GSTR 3. It needs to be filed electronically on the GST portal directly or through a facilitation center.
- 31 November: GSTR-9A RETURN FILLING DUE DATE – Taxable Persons paying tax under Section 10 of CGST Act, the composition scheme, are required to submit their annual returns in Form GSTR 9A.
- 31 November: GSTR-9B RETURN FILLING DUE DATE- Annual Return to be filed by e-commerce operators who have filed GSTR 8 during the financial year.
- 31 November: GSTR-9C RETURN FILLING DUE DATE- Taxpayers whose annual turnover exceeds INR 2 crores in a Financial Year are required to get their accounts audited by a practicing Chartered Accountant or Cost Accountant before filing returns in Form GSTR 9C.
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