Direct taxes bill likely in winter session: Chidambaram

The Direct Taxes Code Bill, which seeks to replace the archaic Income Tax Act, is likely to be placed in Parliament during the winter session, Finance Minister P Chidambaram said today. "We are trying to bring DTC in the next session," the minister told reporters here. The winter session may start in early December, after the completion of assembly elections in five states. The final draft of the DTC Bill, which has to be vetted by the Cabinet, keeps the income tax exemption limit unchanged at Rs 2 lakh for individuals. It proposes to introduce a fourth slab with a 35 percent tax rate for those with an annual income of over Rs 10 crore. Among other things, the bill proposes to levy a 10 per cent tax on dividend income exceeding Rs 1 crore. The minimum alternate tax may be levied on book profit and not on gross assets, sources said. Further, the securities transaction tax is likely to be retained, as against the recommendation of the Standing Committee on Finance that the levy be abolished. At present, tax is levied on income of Rs 2-5 lakh at 10 per cent, Rs 5-10 lakh at 20 per cent, and above Rs 10 lakh at 30 per cent. Further, those earning more than Rs 1 crore have to pay a surcharge of 10 per cent.

Income tax department to issue directive on safe harbour rules

The income tax department will issue a directive to its officers on the implementation of safe harbour rules in a move that is aimed at allaying fears of companies regarding various aspects of these and which should make transactions between multinationals and their Indian subsidiaries easier and, possibly, litigation-free.

The circular is expected to state that the relatively higher profit margins under safe harbour rules cannot be taken as a benchmark by the transfer pricing officer (TPO) and will not be counted against the company in subsequent evaluations.

In September, India’s finance ministry issued safe harbour rules to reduce transfer pricing litigations after taking into account feedback from all stakeholders on the draft provisions. Safe harbour rules are circumstances under which the tax department will accept the transfer price given by the assessee. Information technology (IT) and Information technology enabled service (ITeS) companies, contract research and development (R&D) centres in IT and pharma sectors, and auto component manufacturers are expected to benefit from these provisions.

Transfer pricing refers to the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged to an unrelated party—is levied. It has been an area that the income tax department has been aggressively pursuing to garner revenues but has also led to large scale disputes between companies and the tax department.

Companies have to declare a higher operating profit margin—much above what will be considered an arm’s length price—to avail the safe harbour provisions but there was a fear that the transfer pricing officer may quote this margin in all future transactions.

“Apprehensions have been raised by the industry after we notified the safe harbour rules. We will issue written directives to the officers on how to handle these cases. In the event a company does not qualify for safe harbour, the TPO cannot take that price as the benchmark. The TPO will have to do his own analysis and decide on the right price,” said a finance ministry official who did not want to be identified. “A few other concerns have also been raised which will be addressed through the directive,” the official said.

Another finance ministry official said that the concerns of the industry will be addressed. “Reducing disputes related to transfer pricing was one of the main reasons for the introduction of safe harbour norms. So if industry has concerns, they will be addressed by CBDT (Central Board of Direct Taxes),” the official said.

Safe harbour rules were part of the Finance Act of 2009 but due to the lack of consensus, the rules were not notified. The need for safe harbour rules gained momentum after Prime Minister Manmohan Singh set up a committee under N. Rangachary, former chairman of CBDT and Insurance Regulatory and Development Authority (Irda), to address the concerns of the industry around transfer pricing and recommend safe harbour rules.

The tax department has been aggressively scrutinizing cases related to transfer pricing, leading to an increase of Rs.60,000 crore in claims.

Samir Gandhi, a partner at Deloitte Haskins and Sells, said the safe harbour regime will take at least a year to settle down and for the issues to be addressed.

“The government is trying to ensure smooth implementation of safe harbour and the promised directive to the cadre is one such step. Safe harbour markups should not be considered or deemed arm’s length pricing,” he said. “However, there will be issues as it will not be easy for the TPO to determine whether a company is providing software service or acts as a contract R&D centre for software services.”

It is important that the government ensures that this does not become a detailed and long exercise, he added.

CAT annuls appointment of senior revenue official

The Central Administration Tribunal (CAT) has quashed the appointment of Central Board of Direct Taxes (CBDT) member Parvinder Sohi Behuria, seven months after she took charge.

This is for the first time that a serving member’s appointment has been declared invalid on the grounds that the vacancy did not exist when the orders were issued. The 1977 batch Indian Revenue Service officer is handling the charge of revenue at the administrative body for collecting income tax.

The appointment was challenged by a Chief Commissioner of Income Tax, Dileep Shivpuri, also in the fray for the post. In his petition, he alleged finance secretary R S Gujral, who was handling the revenue portfolio at that time, had “unduly favoured” Behuria.

He alleged she didn’t meet the criteria of one year of regular service in the post of chief commissioner or its equivalent, and had less than one year’s residual service on the date of occurrence of vacancy.

Behuria was appointed member in place of S S Rana, who retired on March 31. The CAT has ruled that since no vacancy existed on that day, no selection or appointment could have been made against the post before April 1. The government will now have to make a fresh selection for the post.

The CAT, however, did not accept the objection raised by the petitioner on relaxing criteria regarding working on an equivalent post outside the cadre. Before her appointment as CBDT member, Behuria was secretary at the Public Enterprises Selection Board (PESB) in the rank of chief commissioner.

“Since others also had been given such relaxation in similar circumstances in the post, we would feel that this constitutes a category in itself,” it said.

It also refused to get into comparative evaluation of the merits of Shivpuri’s application for the post and allegations of “undue favour” being made against him by Gujral.

Behuria, a doctorate in business administration, is married to heavy industries secretary, Sutanu Behuria,. She was appointed PESB secretary on January 1, 2008. She was part of the core team that implemented the Income Tax Department’s Permanent Account Number for tax payers.

At CBDT, she is handling all matters relating to revenue budget, including the assigning of budgetary targets among chief commissioners throughout the country, recovery of taxes, write-offs of income tax demands, all matters relating to widening of tax base, and general coordination of the work.

Tax-free bonds: 10 facts you need to know before investing

Tax free bonds have emerged as a popular investment option due to the taxation benefits they offer. The interest income on these bonds, generally issued by government enterprises, is exempted from taxation.

Here are the salient features of the tax-free bonds:

What are tax-free bonds: These bonds are mostly issued by government enterprises and pay a fixed coupon rate (interest rate). As the proceeds from the bonds are invested in infrastructure projects, they have a long-term maturity of typically 10, 15 or 20 years.

Tax benefits: The income by way of interest on tax-free bonds is fully exempted from income tax. The interest earned from these bonds does not form part of your total income. There is no deduction of tax at source (TDS) from the interest, which accrues to the bondholders.

But remember that no tax deduction will be available for the invested amount. Interest rate: The coupon (interest) rates of tax-free bonds are linked to the prevailing rates of government securities. So these bonds become attractive when the interest rates in the financial system are high. Interest payment:

The interest on these bonds is paid annually and credited directly in the bank account of the investor. Tax free bonds vs bank fixed deposits (FDs): The interest earned on bank FDs and other normal bonds are added to the income of the investor and taxed as per the income-tax slabs. As interest earned from tax-free bonds are not taxed, investors in higher tax brackets mostly earn a better post-tax return than from FDs.

But remember, the bank FDs score over tax-free bonds in terms of liquidity as these bonds have a longer maturity tenure. Credit risk: Since tax-free bonds are mostly issued by government-backed companies, the credit risk or risk of non-repayment is very low. Liquidity: The tax-free bonds get listed and then traded on the stock exchange(s) to offer an exit route to investors.

But these bonds might not enjoy high liquidity as they are long-term in nature. Do you need a demat account? The bonds could be issued both in demat and physical mode. Secondary market: Investors can buy and sell these tax free bonds on the stock exchanges.

Though the interest earned on these bonds is tax-free, any capital gain from sale in the secondary market is taxable. Short-term capital gains from sale of tax-free bonds on exchanges are taxed at the normal rate, while long-term capital gains are taxed at 10% without indexation and 20% with indexation, whichever is lower. By indexing, you adjust the purchasing price with annual inflation.

Who should invest? Tax-free bonds are suitable for investors looking for a steady source of income annually and can afford to lock-in their capital for the long term. (Disclaimer: Investors are advised to make their own assessment before acting on the information.)

I-T department to review orders of Settlement Commission

By: M PADMAKSHAN MUMBAI: The orders of the Income-Tax Settlement Commission, the body with powers to settle dispute between the income-tax department and taxpayers, are increasingly coming under review of the I-T department as it suspects some of the Commission’s recent decisions were not satisfactory. The Settlement Commission, set up in 1976, is a statutory body which a taxpayer can approach at any stage of the assessment proceeding, subject to certain conditions. It has the authority to waive interest and penalty and grant immunity from prosecution under the Income-Tax Act. Its orders are conclusive and non- appealable. The Central Board of Direct Taxes (CBDT) has asked the assessing officers to scrutinise the Settlement Commission’s orders and make a report, identifying the holes in the Commission’s orders and explore the possibility of filing a writ petition. KV Chaudhary, member (investigation ), CBDT, has admitted that a directive to scrutinise these orders has been issued, but said there was nothing new in asking the officers to review the orders. Scrutinising such orders has been routinely done, he said. When asked why a directive now, he said, “We have just formalised the system. Now the officer dealing with the case has the responsibility to file a report on the Commission’s orders.” R Bharadwaj, chairman of the Commission, said, “I cannot comment on the internal matter of CBDT.” According to sources in the I-T department, the immediate reason for this move is that the Commission’s recently let off some offenders who were caught fudging accounts using bogus bills. The Settlement Commission, constituted under section 245 B of the Income-tax Act, 1961 (Chapter XIX-A ) and section 22B of the Wealth Tax Act, 1957, had its ups and downs with finance minister P Chidambaram, curtailing the Commission’s powers to the minimum and his successor Pranab Mukherjee reinstating its powers in addition to sanctioning additional benches. Mukherjee was reportedly convinced by the then senior functionaries of the Commission that the latter can collect revenues faster than other forums. The Commission has benches at New Delhi, Chennai, Kolkata and Mumbai. The Commission has the record of refusing to admit the application of late Harshad Mehta and Pune businessman Hasan Ali Khan, who is facing probe from the Enforcement Directorate and the income-tax department on charges of opening illegal accounts in Swiss banks.

Tax Reform Commission to submit first report in six months: Parthasarathi Shome

The Tax Administration Reform Commission (TARC), set up by the Finance Ministry to suggest measures to prevent economic offences among other things, is expected to submit its report in six months, TARC Chairman and Advisor to Finance Minister Parthasarathi Shome said here on Monday.

The Commission held its first meeting here on Monday.

The term of the 7-member TARC is 18 months, and it will work as an advisory body to the Ministry of Finance.

The terms of reference of the Commission include a review of the existing mechanism of dispute resolution and methods to widen tax base.

The TARC will also recommend measures to strengthen inter-agency information sharing between Central Board of Direct Taxes (CBDT), the Central Board of Excise and Custom (CBEC), the Financial Intelligence Unit (FIU), the Enforcement Directorate, and also with banking as well as financial sectors.

It will review the existing mechanism and recommend measures to enhance predictive analysis to detect and prevent tax and economic offences, said an official statement.

Besides, it will recommend a system to enforce better tax mechanism — by size, segment and nature of taxes and taxpayers that should cover methods to encourage voluntary tax compliance.

The statement said the Commission will be supported by a Secretariat and have its headquarters in Delhi. It will be provided information and quantitative data of CBDT and CBEC to do statistical analysis for making recommendations.

“An emerging economy must have a tax system that reflects best global practises. I propose to set up a TARC to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of our tax system,” Finance Minister P Chidambaram had said in his budget speech.

The members of the Commission are: Y. G. Parande, Sunita Kaila, M. K. Zutshi, S. S. N. Moorthy, M. R. Diwakar and S. Mahalingam.

The Commission will again meet on Tuesday.

Income Tax department puts HRA exemption under scanner

As if the additional information required in tax returns was not enough, there's more bad news for tax evaders. Salaried taxpayers who claim HRA exemption will now have to report their landlord's PAN if the total rent in a year exceeds Rs 1 lakh. "In case the landlord does not have a PAN, he must submit a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee," says a circular issued by the Central Board of Direct Taxes last week. Till now, if the total rent paid was less than Rs 15,000 a month, there was no need to submit the landlord's PAN details. The new rule effectively reduces this limit to Rs 8,333 a month. This is being seen as an attempt to plug tax evasion by salaried professionals who submit fake rent receipts to maximize their HRA exemption. But even honest taxpayers will have to suffer the collateral damage. "This will create problems for many employees as landlords are generally reluctant to provide PAN on rent receipt to tenants," says Vineet Agarwal, director KPMG. The CBDT circular has also sounded another warning. Under section 10(13A), salaried employees who get HRA up to Rs 3,000 per month are not required to produce rent receipts. "This concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent," the circular clarifies. Gross direct tax collections between April and September 2013 touched Rs 3.01 lakh crore, a rise of 10.7 per cent over the Rs 2.72 lakh crore collected in the corresponding period of the previous fiscal. But the government had fixed a 19 per cent growth target for direct tax collection. In the first six months of the fiscal, barely 45 per cent of the total direct tax collection target of Rs 6.72 lakh crore has been achieved.

FinMin worried over tax mop -up

After getting some comfort on the current account deficit with a rise in exports, the finance ministry is now worried about revenue, crucial for containing the fiscal deficit at 4.8 per cent of gross domestic product, its outer target.

As tax collections were subdued in the first half of the financial year, it has planned to issue instructions to field officers to take all possible measures to meet their Budget target.

The revenue department’s worry is that in many cases taxpayers have taken credit for the tax already paid by them on inputs, thus reducing their net cash outgo. The Central Board of Excise and Customs (CBEC) might ask field officers to do a special audit in such cases.

Finance Minister P Chidambaram will soon brainstorm with top revenue officials on what to do. The CBEC brass is to meet on Friday in this regard. Besides special audits, other measures could include notices to non-filers and stop-filers, recovery of arrears and fast settlement of disputes, among others.

“This time, the tax credit has been more than cash payment. It could be because of expansion by companies, particularly in capital-intensive sectors, but this might not be true in all the cases. We are trying to figure out why this happened,” said a ministry official who did not wish to be identified.

The official said the ratio of tax credit to cash payment was 35:65 a decade earlier; now, this had reversed. Tax credit of about Rs 2.5 lakh crore was given last year. So far this year, tax credit of Rs 1,72,000 crore has been taken, while cash payments are Rs 62,107 crore.

The growth in tax receipts during the first half of this year has been lower than the 19 per cent projected in the Budget for the entire year, as GDP growth is less than expected.

Indirect taxes are particularly bothering the government, as excise collections till August were 8.3 per cent down due to weak industrial output, against the Budget Estimate of 11.9 per cent growth for the year. Service tax collections, though up, have also grown at a much lesser pace of 14.3 per cent against the asking rate of 36 per cent.

Collection from customs duty during April-August recorded 9.6 per cent growth over the same period of last year. This is lower than the Budget projection of 13 per cent for 2013-14.

Officials said in September some pick-up was seen, as industrial output grew by 2.7 per cent in July and 0.6 per cent in August. There is a lag effect of one to two months between the two sets of data.

The ministry is expecting collections to pick up in the coming months, led by a growth in industrial output in July and August after a two-month contraction, stimulus to the automobile and consumer durables sector by way of additional capital to banks and higher GDP growth in the last two quarters.

Another silver lining is the coming Assembly elections in five states, which would increase fuel consumption.

Net direct tax collections in April-September were up 10.7 per cent at Rs 250,959 crore, compared with Rs 226,653 crore in the same period of 2012-13.

The government has set a target of Rs 668,109 crore for direct taxes this year, against the BE of Rs 570,257 crore last year. For indirect taxes, the target is Rs 565,002 crore in 2013-14, against last year’s BE of Rs 505,044 crore. In 2012-13, both direct and indirect tax collections fell short of the target and the Revised Estimate was set at Rs 565,835 crore and Rs 469,546 crore, respectively, a rise of 17.4 per cent over the previous year.

Another 10 lakh Income Tax defaulters identified

The Income Tax (I-T) department has identified 10 lakh more high-risk individuals, who have made significant cash transactions through their credit cards or investments but the same had not been reflecting in their I-T returns. High-risk individuals also include those who have consistently not been filing I-T returns. Altogether, there are over 22 lakh I-T defaulters since the data-mining exercise started two years ago. Notices are to be issued to these entities soon, said an I-T official. Last year about 12 lakh individuals were identified, where their transactions didn't match with their returns, raising suspicion. More than 2.45 lakh such individuals had already been served notices for suspected tax evasion till September. Sources said that the notices issued to individuals till March had tax implications in the range of about Rs 3,800 crore.

I-T finds tax evasion by NSEL borrowers

The income-tax (I-T) department has found tax evasion by National Spot Exchange Ltd (NSEL) borrowers, following its search on them in August. The amount of tax on that is yet being finalised by the various income tax circles could be around Rs 100 crore or even more. The tax evasion has been found from a few the borrowers based in northern part of India, especially in Delhi and Ludhiana.

The I-T department had carried out surveys on the premises of the 24 borrowers across states on August 23, just three days after NSEL could cough up just a little over half of the Rs 174 crore due in the first weekly settlement, which led to exchange defaulting. Borrowers are facing charge of borrowing Rs 5,572 crore from the investors using platform of the NSEL and when the exchange suspended trading they could not pay back.

These borrowers were borrowing money from the NSEL platform as that had become a fund-raising platform and commodities trading took back seat. Interest paid by these borrowers on the amount borrowed is allowable as business expense under the I-Tax Act, as borrowing was also for business. However, during the survey, some of the borrowers were found to have diverted money for use other than their business. Hence, interest paid on such borrowing will not be allowed as business expense and they will have to pay income tax on that with interest and penalty, said an I-T official.

According to an affidavit filed by NSEL’s former managing director Anjani Sinha last month, some of the borrowers with very high exposure were borrowing fresh money just to pay cost of interest and rolling over cost, which was running to 20-30 per cent of their borrowing and in absolute terms in the range of Rs 50-200 crore. Even part of these expenses not allowed as business expense there could be a huge tax recovery.

I-T has also wrote to 13,000 investors of NSEL to know if the money they had invested in NSEL-traded products was tax-paid money or not. Responses have started coming in and the investigation wing is passing on this information to the intelligence and criminal investigation wing (I&CI). This wing works to develop a robust database of financial information and aid the regular investigation wings of the I-T to undertake “specific and result-oriented” search and survey operations.

I & CI will maintain that as a data base for future investigation. According to an I-T official, from the data base of the NSEL investors, randomly some cases will be picked up and detailed inquiries will be done. One of the issues being raised not just that whether the tax was paid on the money invested in NSEL but also if they had such an income that allow them choice to put money in NSEL products that which are their other incomes and whether they pay proper tax on that.

Direct tax collections take a hit on eco slowdown

On the back of slowdown in growth, direct tax collections have fallen short of budget projections; a trend that is expected to continue in the second half of the fiscal, reports CNBC-TV18’s Aakansha Sethi. The government had, in the Budget, projected over a 19 percent increase in direct taxes. Actually, there has been only an increase of about 10.8 percent in the first half of this fiscal. It has led to a shortfall of about Rs 20,000 crore in direct tax collections. Also read: Slowing economy: Here are tips to spend money smartly The government is struggling to meet a 4.8 percent fiscal deficit target. The shortfall will only mean that more expenditure cuts. The disinvestment target is also far from being met and subsidies are likely to overshoot significantly. The tax department is going to rely more on arrears from previous years. The total target for arrears for this year is Rs 61,000 crore against total arrears of about Rs 1,90,000 crore. Around Rs 21,000 crore has already been received. The finance ministry hopes to focus on this over the second half. It is going to complete its assessments by December this year, unlike March every year so that they can crack down on evasions. It will also focus on non-filers of income tax returns. This is the income tax department’s (I-T) three-pronged strategy to ensure it covers up shortfall. If growth continues this way, in the second half, the IT department expects more shortfall in collections.

Patna region of income tax department achieves highest growth in tax collection

Patna region of the income tax department comprising Bihar and Jharkhand has achieved 27.9% net growth in tax collection in the first half of 2013-14 compared to the corresponding period in the last financial year.

It is the highest growth among the regions and substantially higher than the mean national growth of 12% in tax collection. The total revenue collection by Patna region increased to Rs 3,585.85 crore in H1 of 2013-14 against Rs 2,802.5 crore in the corresponding period in 2012-13.

Chairperson of Central Board of Direct Taxes (CBDT), New Delhi, Sudha Sharma on Tuesday congratulated Debashish Dasgupta, chief commissioner, I-T (cadre controlling authority), Bihar and Jharkhand, and the Patna region staff for the stupendous success.

Sharma, through a videoconference, reviewed the performance of Patna region which has maintained consistent growth in tax collection, said an I-T official pleading anonymity.

Member (revenue) of CBDT, Parvinder S Behuria, emphasized the need for constant team efforts by the I-T officials for collection of arrear. She also elaborated on non-filer management system (NMS) which is a special computer system developed to generate a list of non-filers of I-T returns and generates and issues notices to each of them.

Direct tax collection up 10.66% in Apr-Sept at Rs 3 lakh crore

Amid a slowing economy, the gross direct tax collections rose only 10.66 per cent to Rs 3.01 lakh crore during the April-September period of 2013-14 fiscal. The collections totalled Rs 2.72 lakh crore in the same period of 2012-13 fiscal. The government has fixed direct tax collection target of over Rs 6.68 lakh crore for the current fiscal, envisaging a growth of 19 per cent, as against Rs 5.65 lakh crore in 2012-13. Gross collection of corporate taxes increased 7.93 per cent to Rs 1,92,308 crore during April-September, from Rs 1,78,173 crore in the year-ago period, the Finance Ministry said in a statement today. Gross collection of personal income tax was up by 16.15 per cent to Rs 1,06,231 crore in the first six months of this fiscal, from Rs 91,463 crore in the year-ago period. Net direct tax collections rose 10.72 per cent to Rs 2,50,953 crore during April-September, as against Rs 2,26,653 crore in the year-ago period, according to the statement. Securities Transaction Tax or STT mop-up stands at Rs 2,210 crore. Wealth tax collection posted a growth of 5.27 per cent to Rs 499 crore, from Rs 474 crore.

GOVERNMENT PLANS TO SHIFT TAXATION FROM DIRECT TO INDIRECT

On 1 October, the Finance Ministry formally submitted to the European Commission an Economic Partnership Programme (EPP), together with a Report on Effective Action, which outline the Government’s plan to close 2013 with a general government deficit below 3%.

In its report, the government speaks of plans to continue shifting taxation from direct to indirect over the medium term.

The report says that further to the revisions in the income tax regime in recent years, the 2013 Budget provided for the widening of the income tax bands for single and joint tax computations, and for parents supporting minors who are not gainfully employed. However, this will be implemented gradually in a manner that will limit the expansionary impact on public finances which will amount to 0.17 per cent of GDP in 2014.

For the period 2013 to 2016, the gradual losses from the revision in the income tax regime affecting direct taxation will be offset by similar gradual revisions in indirect taxation planned in the context of the budgetary exercise for the upcoming year. Moreover, revisions to the VAT legislation are currently ongoing, the report says. These will empower the minister responsible for finance to revise as necessary the penalties and interest payable on taxation due in order to increase tax compliance and ease the recovery of amounts due.

The Economic Partnership Programme (EPP) is divided in two main chapters. The first chapter presents the Government’s key policy planks which represent the crux of the Government’s fiscal and economic strategy and which also correspond to the Country Specific Recommendations (CSRs).

Furthermore, the fiscal framework underpinning the overall strategy is laid forward. This fiscal framework will ensure that Malta moves towards fiscal consolidation and achieves fiscal sustainability. The second chapter lays forward the necessary measures and reforms taken by the Malta Government in all sectors of the economy to ensure that Malta will exit the excessive deficit procedure permanently.

The main economic and fiscal measures proposed include: the diversification of energy sources and the restructuring of the energy corporation (Enemalta); the restructuring of Air Malta; the Pension reform process including the proposed introduction of the third pillar pensions; reforms underway in the health sector; further investment in education; as well as measures to reduce the poverty trap and therefore encourage people to get into employment rather than stay dependent on social benefits.

Other important measures included under the EPP are measures to increase competitiveness through diversification, through incentives and programmes aimed at SMEs and other businesses and through various other reforms, including the holistic Justice reform.

The Report on Effective Action focuses on providing a quantitative analysis on how the Government will reduce the deficit-to-GDP ratio below the 3% threshold.

Filing tax returns: Will projecting it as a status symbol nudge people to pay more?

In what is just the latest bout of a decades-old carrot and stick approach, the tax department has launched a new campaign to get people to pay up taxes. This time, it's all about making people see the tax return as a status symbol.

To this end, minister of state for finance JD Seelam is planning to visit all the 35 cities that house zonal tax offices in a bid to bridge the gap between taxmen and big taxpayers.

Seelam has already visited cities such as Hyderabad, Ahmedabad, Bhopal and Jaipur. "We would like to create a non-adversarial tax environment. The trust deficit between taxmen and industry needs to be removed. Our target is to make people feel that paying tax is a status symbol. That should increase our collection," he says. But will this approach work?

Tax Returns are the New Black

As economic turbulence continues, finance ministry officials are not quite sure whether the tax authorities will meet the tax revenue target of Rs 12.35 lakh crore this year, as was estimated in the Budget. As far as direct taxes go, till September 17, for which data is available, net direct tax collection was up 12.7% to Rs 2.38 lakh crore, triggered mainly by a 21% increase in the personal tax component. But the concern is with corporate taxes, which is up a mere 8% from a year earlier.

A fifth of total tax revenues is from income taxes while corporate taxes make up 34%. The remainder is from indirect taxes such as excise and customs duties. However, the government raises the bulk of its tax revenues from a very small proportion of tax payers. This has always been the case. As of 2011-12, for instance (see Taxing Times), just 1.3% of tax payers, who earned Rs 20 lakh or more, accounted for around 63% of the income taxes collected.

Similarly, while a few lakh companies are registered in India, 1,746 companies with a gross profit of above Rs 50 crore accounted for over three of every four rupees of corporate tax collected in 2011-12.

In a now oft-quoted statement, finance minister P Chidambaram pointed out in his Budget speech earlier this year that there are only 42,800 individuals in the records of the tax department who have a declared income for tax purposes of over Rs 1 crore.

"The economic situation is not in my hands. But I am sure if we make tax administrators act more as facilitators than regulators, tax compliance will increase. Our effort will be to make tax payers feel proud when they pay tax," says Seelam.

In the past, the government has offered various incentives to get people to pay up. Businessmen and film actors have been felicitated for being highest taxpayers. Only two years ago, Cognizant Technology Solutions vice-chairman Lakshmi Narayanan was honoured as the top individual taxpayer in Tamil Nadu as a part of the I-T department's 150-year anniversary celebrations. In July this year, the Punjab government approved a new scheme to award top taxpayers both at state and district levels. The scheme initiated by the state excise and taxation department is aimed at increasing the collection of state tax, including value-added tax (VAT). But there is a minimum threshold of tax payment to qualify for such awards. For example, a rice sheller will qualify for the honour only if he pays at least Rs 2 crore as tax. Similarly, for mobile dealers, the minimum qualification is a tax payment of Rs 25 crore.

In the past, the government has also announced numerous tax amnesty schemes, with mixed success. For instance, the Voluntary Disclosure of Income Scheme was launched in the late '90s with much fanfare under P Chidambaram as finance minister.

"If the Centre is gearing up for a campaign to honour top tax payers, it's a welcome move. But the problem with any government department is that its left hand does not know what its right hand is doing. You shouldn't be surprised if one wing awards a taxpayer and the other raids him. There is a precedence to that," says Sudhir Chandra, former chairman of Central Board of Direct Taxes (CBDT).

Carrot, But also Stick

Another former CBDT chairman PK Misra says recognizing honest tax payers can only be a small component in the campaign to raise more tax. Coercion needs to continue as the core strategy alongside persuasion. "In Western countries 'I pay tax, I buy civilisation' has worked. It won't work in India. Here nobody wants to part with the money that reaches one's pocket," he says.

An income-tax officer posted in Gujarat, one of India's richer states, agrees. "We have to balance both tactics," he says. "Smaller taxpayers, for instance, are usually in a frame of mind where they will pay tax but don't want to face the procedural hassles. In their case, we should make all efforts to ensure that the process is simplified."

"But there is also a class of hardened tax payers who absolutely do not want to pay tax," he adds. "They use chartered accountants (CAs) and tax lawyers to hide money, and it is important to tackle such people through enforcement, searches etc."

CBDT Notifies The Rules For Application Of GAAR

The General Anti Avoidance Rules (GAAR) had first been introduced in the Direct Taxes Code (DTC) in 2009 to curb 'Impermissible Avoidance Arrangement' entered into by a person to avoid taxes. The GAAR had been introduced to deal with aggressive tax planning involving use of sophisticated structures. Although originally forming a part of the DTC, now it is a part of the Income-tax Act, 1961. Under the current provisions, Chapter X-A, dealing with the provisions of GAAR would come into force with effect from 1 April 2015 (Financial Year 2015-16). The Central Board of Direct Taxes has today notified the rules relating to application of GAAR.

Central Board of Direct Taxes extends deadline for electronic tax returns

After facing severe opposition for last minute changes in the utility tool for filing income tax returns for the assessment year 2013-14, Central Board of Direct Taxes (CBDT) has extended the deadline for filing returns to October 31, 2013 from September 30. However auditors, who are made responsible for filing returns of individuals or companies will have to file the report physically before September 30 to acoid penalties. The decision added to the confusion of CAs and auditors as two of the four days left till the deadline are a weekend. There is no clarification by the Income Tax department on whether the office will work this weekend or not. Auditors and CAs fear long queues for filing physical audit reports because of this. CBDT under Section 119(2)(A) of the IT Act, 1961 read with Section 139 and Rule 12 announced a relaxation in the requirement for filing audit reports electronically before September 30 and allowed a one-month extension. CBDT clarified that the decision was taken keeping in mind problems faced by auditors and CA in uploading audit reports electronically, due to eleventh hour amendments in the utility. CA Ajit Shah says, "We expected an extension for filing audit reports both manually and electronically. CBDT has granted relaxation only in the date for filing electronically. Taxpayers and auditors who prefer filing returns on the last day will face a severe rush as on 28th and 29th, the I-T office will be shut for the weekend." One chief commissioner said, "Keeping in mind the complaints, we extended the date for filing audit reports electronically, but those who fail to file it physically before September 30 will have to pay the due penalty." On whether the I-T office would remain open on Saturday and Sunday, he said "It is not decided yet." The penalty for missing the date is 0.5% of turnover, to a maximum of Rs 1.5 lakh. Taxpayers under the ITR 4,5,6,7 which includes charitable and religious trusts, news agencies, research institutions, partnership firms, companies with turnovers over Rs 1 crore and individual professionals earning more than 25 lakh per year will be affected by the announcement.

India's new tax office to cost Rs 485 crore

The Indian government plans to develop a new building at a cost of Rs 485.16 crore that will house the head offices of the country's direct as well as indirect tax administration.

The federal Cabinet, at a meeting chaired by Prime Minister Manmohan Singh, on Tuesday approved the construction of the new building to be called Rajaswa Bhawan.

It will be located at Kasturba Gandhi Marg, in the central part of the national capital.

The estimated cost of the project is Rs 485.16 crore. The Cabinet has also given approval for Rs 15 crore as annual recurring expenditure after completion of the project.

The new building constructed at a 5.65 acre plot will be the headquarters of the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC). Both these boards are currently headquartered in North Block.

These boards, besides advising the government on tax policies, are responsible for the overall administration of field offices under them. The two boards are the largest revenue collectors for the Indian government.

“The growth in revenue collection over the years has led to expansion of the Directorates as well as staff under the Boards, and North Block does not have the capacity to accommodate all these offices,” the Finance Ministry said in a statement after the cabinet meeting here.

“Therefore, a composite building bringing together both the Boards and associated offices will improve efficiency immensely, as appropriate physical infrastructure and work environment are important contributors to overall efficiency in tax administration,” it said.

Adopt uniform procedures for non-filers of I-T returns: CBDT

With an aim to check tax evasion, the Central Board of Direct Taxes (CBDT) has tightened norms to deal with 'no-filers' of income tax returns and asked its officers to follow uniform procedure in handling such cases.

"The existing procedure for monitoring cases of 'non- filers of I-T Returns'...has been examined by the Board. It is felt that at present, cases of non-filers are not being uniformly monitored by the Assessing Officers due to lack of consistency in approach in dealing with such cases," the CBDT said in a communication to its top officers.

Therefore, in order to streamline the processing of such cases and to ensure consistency in monitoring 'Non-Filers Monitoring System' (NMS) cases by the Assessing Officers, the CBDT has issued "standard operating procedure".

As per the guidelines, the Assessing Officer has to issue letter to the assessee within 15 days of the case being assigned in NMS, seeking information about the return of income flagged in the system.

In cases where the assessee has been identified and no return has been filed within 30 days of the time given in the letter, the Assessing Officer should consider initiation of proceedings as prescribed.

The CBDT (Income Tax Department) has identified about 12 lakh non-filers and has been sending letters to them to file returns and pay taxes. As per the latest data, the tax department has issued letters in 2.45 lakh cases.

Following issuance of letters to non-filers, CBDT earlier said, about 3.44 lakh returns have been received from the target segment. Such persons, it said, have also paid self assessment tax amounting to Rs 577 crore and advance tax of Rs 408 crore.

The department has also made it clear that it will to go after recalcitrant taxpayers and the exercise will continue till all potential non-filers are covered.