New Delhi, May 7: Bowing to pressure, Finance Minister Pranab Mukherjee today announced a slew of measures to provide relief to the jewellery sector and postponed implementation of the general anti-avoidance rules (GAAR) by one year, but offered no concessions to Vodafone involved in tax dispute.
Moving the Finance Bill, 2012 for consideration and passage in the Lok Sabha, Mukherjee halved the capital gains tax for private equity investors to 10 per cent and relaxed the norms for arrest of persons involved in violation of Customs Act.
“The government has decided to withdraw the levy (one per cent excise duty) on all precious metal jewellery, branded or unbranded, with effect from March 17, 2012,” he announced, bowing to demand within and outside the House.
He said the threshold limit for TCS (tax collection at source) on cash purchase of jewellery will be raised to Rs 5 lakh from the present Rs 2 lakh.
However, the Minister said, the threshold limit for cash purchase on bullion will be retained at Rs 2 lakh. Bullion will not include any coin or other article weighing 10 gm or less, he added, setting the tone for the debate on the crucial bill.
As regards the GAAR, which has evoked sharp criticism from foreign investors, the Finance Minister said, “to provide more time to both tax payers and tax administration to address all issues, I propose to defer the applicability of the GAAR provisions by one year...(it) will now apply to income of financial year 2013-14 and subsequent years.”
At the same time, Mukherjee said, he proposed to make some amendments to the GAAR provisions. These amendments including shifting of onus of proof to the revenue department from the tax payers, appointment of independent member in the GAAR panel and permitting investors, domestic and overseas, to seek ruling from the Authority for Advance Ruling (AAR).
In order to provide “greater clarity and certainty” in GAAR related issues, he said, a committee has been set up. It has held several rounds of discussions with various stakeholders including foreign institutional investors and will submit its report by May 31.
He made it clear that there would no relief to Vodafone-type overseas deals involving capital gains tax on sale of domestic assets and the proposed retrospective changes in the Income Tax Act would apply.
“I would like to confirm that clarificatory amendments do not override the provisions of the Double Taxation Avoidance Agreement (DTAA) which India has with 82 countries. It (retrospective changes) would impact those cases where the transactions has been routed through low tax or no tax countries with whom India does not have a DTAA,” he said.
Mukherjee did not make any specific mention but was clearly referring to the tax controversy surrounding USD 11.2 billion Vodafone deal which was signed in Cayman Islands in 2007. India does not have a DTAA with Cayman Islands.
Vodafone has won the Rs 11,000 crore tax case in the Supreme Court, but after the passage of the Finance Bill, the government can initiate proceedings to recover the tax.
Mukherjee said that retrospective amendments to the Income Tax Act will not be used to reopen cases where assessment orders have already been finalised.
“I have asked the Central Board of Direct taxes to issue a policy circular to clearly state this position after passage of the Finance Bill,” he said.
The government had earlier said that under the Income Act, the revenue department cannot reopen cases of beyond six years.
The Minister also announced that long term capital gains tax for private equity investors, domestic and foreign, will be halved to 10 per cent as is applicable for Foreign Institutional Investors (FIIs).
Earlier, it was 20 per cent. In order to provide depth to the capital markets through listing of companies, the Minister proposed to extend the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer.
“I propose to provide the levy of Securities Transaction Tax (STT) at the rate of 0.2 per cent on such sale of unlisted securities,” he said.
As regards the levy one per cent Tax Deduction at Source (TDS) on transferee of immovable property (other than agricultural land), Mukherjee announced withdrawal of the budget proposal in view representation received from different stakeholders that the move would enhance compliance burden.
On the controversial and harsh proposal of making certain offences under the customs and central excise laws as cognisable and non-bailable, the Minister said, “In response to concerns expressed by members that the proposal regarding grant of bail only after hearing the public prosecutor is too harsh, I propose to omit this provision entirely.
“In addition, only serious offences under the customs law involving prohibited goods or duty evasion exceeding Rs 50 lakh, shall be cognisable. However, all these offences shall be bailable,” he said.
Mukherjee said the RBI is formulating a scheme for subsidiarisation of Indian branches of foreign banks to “ring fence” Indian capital and Indian operations from economic shocks external to the Indian economic scenario.
“To support this effort, I propose to provide tax neutrality for such subsidiarisation,” he said. With a view to augmenting long-term low cost funds from abroad, the minister announced that the lower rate of 5 per cent withholding tax will be applicable to all businesses, in addition to infrastructure sector.
“This lower rate of tax would also be available for funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement,” Mukherjee said.
On concerns of state governments on Service Tax, he said, “I have decided to address their concerns by making changes in the definition of ‘service' which will exclude the activities specified in the Constitution as ‘deemed sale of goods'.
The definition of ‘works contract' has also been enlarged to include movable properties.”
Besides, exemption for specified services relating to agriculture in the Negative List has also been extended to agricultural produce enlarging the scope of the entry.
