Finance Bill 2012: Six Good Modifications For Tax Payers by FM

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Finance Bill 2012: Six Good Modifications For Tax Payers by FM

A number of controversial proposals of Finance Bill 2012 have been proposed  modification by  the  Union Finance Minister Shri Pranab Mukherjee , as reflected in the  the text of the Opening Remarks at the beginning of the discussion on Finance Bill 2012 in Lok Sabha. This posting is prepared from the  from extract of opening speech of Hon’ble Finance MinisterFinance_bill

Modification of GAAR

After examining the recommendations of the Standing Committee on GAAR provisions in the DTC Bill 2010, I propose to amend the GAAR provisions as follows:

  1. Remove the onus of proof entirely from the taxpayer to the Revenue Department before any action can be initiated under GAAR.
  2. Introduce an independent member in the GAAR approving panel to ensure objectivity and transparency. One member of the panel now would be an officer of the level of Joint Secretary or above from the Ministry of Law.
  3. Provide that any taxpayer (resident or non-resident) can approach the Authority for Advance Ruling (AAR) for a ruling as to whether an arrangement to be undertaken by her is permissible or not under the GAAR provisions.
  4. To provide greater clarity and certainty in the matters relating to GAAR, a Committee has been constituted under the Chairmanship of the Director General of Income Tax (International Taxation) to give recommendations for formulating the rules and guidelines for implementation of the GAAR provisions and to suggest safeguards so that these provisions are not applied indiscriminately. The Committee has already held several rounds of discussion with various stakeholders including the Foreign Institutional Investors. The Committee will submit its recommendations by 31st May 2012.
  5. To provide more time to both taxpayers and the tax administration to address all related issues, I propose to defer the applicability of the GAAR provisions by one year. The GAAR provisions will now apply to income of Financial Year 2013-14 and subsequent years.

Retrospective Amendments application

Hon’ble Members are aware that a provision in the Finance Bill which seeks to retrospectively clarify the provisions of the Income Tax Act relating to capital gains on sale of assets located in India through indirect transfers abroad, has been intensely debated in the country and outside. I would like to confirm that clarificatory amendments do not override the provisions of Double Taxation Avoidance Agreement (DTAA) which India has with 82 countries. It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA .

The retrospective clarificatory amendments now under consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalized. I have asked the Central Board of Direct taxes to issue a policy circular to clearly state this position after the passage of the Finance Bill.

Long Term Capital Gains on private companies shares

  1. Currently, long term capital gain arising from sale of unlisted securities in the case of Foreign Institutional Investors is taxed at the rate of 10% while other non-resident investors, including Private Equity investors are taxed at the rate of 20%. In order to give parity to such investors, I propose to reduce the rate in their case from 20% to 10% on the same lines as applicable to FIIs.
  2. To promote further depth of the capital markets through listing of companies, I propose to extend the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer. For this purpose, 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.

Share Premium Not Income For Notified Class of Persons

It has been proposed in the Finance Bill that any consideration received by a closely held company in excess of the fair market value of its shares would be taxable. Considering the concerns raised by ‘angel’ investors who invest in start-up companies, I propose to provide an enabling provision in the Income Tax Act for exemption to a notified class of investors.

No TDS or TCS on Property Sale

The Finance Bill proposes that every transferee of immovable property (other than agricultural land), at the time of making payment for transfer of the property, shall deduct tax at the rate of 1% of such sum. I have received a number of representations pointing out the additional compliance burden this measure would impose. I, therefore, propose to withdraw this provision for levy of TDS on transfer of immovable property.

Bullion & Jwellery

To curb the flow of unaccounted money in the bullion & jewellery trade, the Finance Bill proposes the collection of tax at source (TCS) by the seller at the rate of 1 per cent of the sale amount from the buyer for all cash transactions exceeding Rs.2 lakh. Responding to the representations made by the jewellery industry that this would cause undue hardship, I propose to raise the threshold limit for TCS on cash purchases of jewellery to Rs.5 lakh from the present Rs.2lakh. The threshold limit for TCS on cash purchase of bullion shall be retained at Rs.2 lakh. However, it is being clarified that bullion will not include any coin or other article weighing 10 gms or less.

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  • R S Nambi

    But these are half hearted measures except for Gold Bullion and property investments. GAAR still remains a worry. No incentives for attracting Foreign Capital in certain sectors like infra ,Agri Based and SMEs where growth is possible in the short run.

    R S Nambi
    Consultant-World Bank

  • Mohinder Singh

    Clarification of gift to HUF by karta/co-parceners making not taxable without any limit is worth praise as this will promote joint family which is at the verge of extinction.