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Tax World Reacts
The Finance Minister was faced with a very difficult task. Fortunately, tax rates have
not been raised too much. The 10% surcharge on super rich was expected and the
FM's statement that it will be only for one year is comforting. The increase in tax for
domestic companies, which is approximately 1.5% is also not unreasonable.
However, the tax rate increase for foreign companies i.e. those which are not
incorporated in India, by about 1%, while not very large, will impact entities like foreign
banks and foreign companies operating as project offices, both of which sectors
actually need incentivisation.
One would have hoped for a neutralisation of the retrospective amendment on indirect transfer, but
unfortunately there is no such reference and one does not know what the fate will be. One would have
also hoped for some directional clarity on transfer pricing and acknowledgement with some stability
and ringfencing will be done, especially given that 70% of the worlds transfer pricing litigation is
emanating from a country constituting less than 2% of world's global trade.
The reference to setting up a Tax Administrative Reform Commission is heartening, but one hopes that
something will translate on the ground very quickly.
From an international investor standpoint, the reference to Tax residency certificate being a necessary,
but not sufficient, condition for claiming tax treaty benefits is disturbing; while the Mauritius Circular of
2000 has not been expressly withdrawn, this does create significant uncertainty. Also, the hike in
withholding tax rates on royalty and fees for technical services from 10% to 25% will be of concern to
international companies; this is especially so in case where they find it difficult to obtain a Tax residency
certificate and therefore, find it difficult to claim tax treaty benefit.
Mr. Ketan Dalal
Regional Managing Partner (Tax), PwC
“The foreign investors were looking at certainty and stability with respect to tax
policies and administration. The FM has accepted recommendation of Shome
Committee and has deferred GAAR by 2 years ie it will be effective FY 2015-16. This
is a welcome step and portrays that Govt means business and will provide certainty to
investors. Having said that the Finance Bill is silent on the ‘retrospective amendments’
with respect to indirect transfer so this still remains uncertain and litigative. On royalty
& technical service fees, the Bill has proposed to increase the rate from 10% to 25%.
However, most tax treaties have a withholding tax rate of 10 to 15% so technology transfer from those
treaty countries will not be impacted. One key change which is proposed is that Tax residence
certificate will be a necessity but not a sufficient proof to avail tax treaty benefits. This could open
floods of litigation and the decision of Supreme Court in Azadi Bachao Andolan could be questioned
going forward. This could be a negative impact on FIIs which are investing through favorable treaty
country like Mauritius. Also the FM has plugged a loophole of companies doing buy-back rather than
declaring dividend and those avoiding DDT going forward. Overall, though the FM has tried to clarify
most tax issues, the uncertainty on retrospective amendments is still an unfinished agenda.”
Mr Uday Ved
Tax Partner, KPMG
Reintroduction of Investment Allowance
The proposal by the Honorable Finance Minister to reactivate the manufacturing
sector by introducing investment allowance at 15% for an investment of Rs. 100
crores and above is welcome measure. Considering the importance of the
manufacturing industry there is need for lower threshold. Further the same should
also be extended to non-manufacturing sectors also like IT Services.
Taxation of income by way of Royalty or fees for Technical Services:
The proposal by the Honourable Finance Minster to increase the rate of Withholding Tax from 10% to
Copy of Finance Bill and Memorandum
Tax World Reacts
Pre-Budget Expectations
5 Tax Proposals FM should present this Budget
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20% TDS on profit distrib
Head (Tax), Amarchand & Mangaldas & Suresh A.
Sh ff & CBudget’13 – Not a Game Changer “Roti, Kapda aur
Makan” are not su...
Mr. Anish Mehta
National Head, Tax & Regulatory Services,
H ibh kti & CConsidering the recent spate of transfer pricing
adjustments and few other crucial retroac...
Ms.Karishma R. Phatarphekar
Partner & Practice leader, Grant Thornton India
Buy back from treaty country may continue to have
tax protection. Eg Singapore, Mauri...
Mr. Sunil Kapadia
P t E&Y
Mr. Anish Thacker, Partner, E&Y
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2. 25% is certainly not a welcome step. Further, the rate of 25% is even beyond the rates prescribed
under the Double Taxation Avoidance Agreement. Though, the assesse is eligible to avail the treaty
benefit and can availthe concession rate under the treaty law, thesteep increase in the rate for
withholding tax may impact only the payment madeto theresidents of non-treaty based countries/non-
residents who do not have PAN/non-residents who are not able to obtain TRC. .
GAAR Amendments
The Finance Minister has amended the provision relating to General Anti Avoidance Regulation
considering the recommendations of Dr. Shome committee. The amendments relating to the definition
of impermissible avoidance arrangement, setting up of approving panel andbinding nature of the
directions issued by the approving panel on both tax payers and the income tax authorities are certainly
most important measures.
Buyback of Shares
The proposal by the Honorable Finance Minister to tax the buyback of share as deemed dividend in the
hands of the company at the rate of 20% is against the provisions of section 46 A of the income Tax
Act. Probably the intention behind this proposal is to plug the repatriation of profits through the
buyback of shares, but this would also impact companies who does the buyback of shares not just for
profit repatriation but also for other restructuring purposes. It should also be clarified wherever the
company has paid the divided distribution tax on buyback of share no capital gain tax should arise in the
hands of the shareholder. It is an indirect way of making the Singapore / Mauritius / Cyprus treaties
redundant.
Amendment to Section 80JJAA
The amendment to Section 80JJAA by which the deduction for employment of workmen are applicable
only to the companies engaged in the manufacturing of goods and consequent reversal of Bangalore
Tribunal ruling in Texas Instruments case is most inappropriate as the IT companies contribute
significantly to the employment generation.
Credit for DDT
Further the proposal to give credit of Dividend Tax paid on Dividends received from subsidiary
companies while computing DDT paid is welcome and may help the companies to reduce the
cascading effect of Dividend Tax.
Safe Harbor
The commitment by FM in his speech to introduce Safe Harbor norms by 31st
March 2013 is very
much assuring to Captive IT Companies.
Introduction of WHT
The introduction of WHT on consideration paid at the time of sale of land or building is another
measure aimed to increase revenue.
I sincerely hope that the Finance Minister will keep the promise of increased surcharges on certain
category of assesses for one year only.
Mr. K.R. Sekar
Partner and Leader International Tax - Deloitte
In the run-up to the Budget, there has been a lot of discussion, debate and
speculation around what steps the FM, P. Chidambaram would take for 2013. Clearly,
he has been faced with a number of challenges and it was imperative to address all of
these. Controlling the fiscal deficit was his number one priority. At the same time, he
would have to take concrete steps stimulate growth and rein in inflationary trends.
In developing the proposals today, the FM stated that he had been guided by the need to provide
“clarity in tax laws, a stable tax regime, a non- adversarial tax administration, a fair mechanism for
dispute resolution and an independent judiciary. ” A few of the key proposals announced today were
certainly geared towards encouraging investments. These include the re-introduction of investment
allowance of 15% for investments over Rs. 100 Crores and accepting the major recommendation of
Shome Committee with some modifications. Interestingly, there has been no mention on the way
forward for retrospective amendments announced in last year’s Budget.
Increasing tax revenues was also a priority for the FM. After the speculation around whether the FM
would tax the “super-rich”, he has introduced a 10% surcharge from those individuals with a taxable
income of over Rs. 1 crore, albeit for a year. Other key proposals include the hike in surcharge on
Dividend Distribution Tax from 5% to 10%. For companies with an income of more than Rs 10 crore,
there is an increase in surcharge from 5% to 10%. There has also been enhancement of tax deduction
rate on payment of royalty and fees for technical services which has been increased from the current
10% to 25%.
The proposal to introduce the modified version of the Direct Tax Code in this session of the Parliament
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3. is a welcome move.
In the given circumstances with revenue augmentation challenges, fiscal deficit and inflation as the
backdrop, the FM has done a reasonably good job of tackling these concerns. The true test will lie in
implementation of the proposed amendments – that remains to be seen.
M. Lakshminarayanan
Managing Partner (Tax), Deloitte Haskins & Sells
"The tax proposals contained in Budget 2013-14 presented by India's Finance
Minister, P Chidamabaram, in Parliament today in many ways are "no surprises" which
by itself is a great virtue in terms of providing stability in tax matters. However, with an
enviable track record in presenting innovative tax policy proposals in the past, a sense
of disappointment is evident in terms of not seeing any significant game changing tax
proposals from the FM's table. There are ofcourse some laudable proposals, for eg,
bringing investment allowance at 15% on investments in Plant and Machinery exceeding Rs 100 crores
and providing Dividend Distribution Tax (DDT) exemption to Indian companies distributing dividends
out of dividends brought in from overseas subsidiaries which would be eligible for a lower rate of tax at
15%. However the dampner is an effective increase in corporate tax rate from 32.5% to 34%. The FM
seems to have equated the tax on super rich individuals with super rich companies which is
unfathomable as investment in risk capital to run businesses cannot be equated with income earned by
individuals. Also, the 42,800 individuals reporting taxable income exceeding Rs 1 crore mentioned in
the FM's speech, who will now be subjected to additional 10% surcharge, would have liked to see
some actionable steps to increase the tax base and increase in tax GDP ratio beyond mere statements
of intent in the Budget. Finally, whilst the FM reiterated the imperative need to attract foreign
investment, it is disappointing to see no attempt to address the retrospective amendment on Indirect
transfers and many others brought on the statute book in last year's Budget. Moreover, the proposal to
increase the withholding tax rate on royalties and Fees for Technical Services (FTS) from 10% to 25%
is strange when the tax treaty rates are in the range of 10-15%. All in all, the good news in this year's
Budget is that there are no big bang news to be worried about. However, there are enough pin pricks in
the fine print, some of which could have been easily avoided."
Mr. Sudhir Kapadia
National Tax Leader, E&Y
The Finance Minister started the Budget speech with the objective to contain current
account deficit and Fiscal deficit by rationalising the expenditure. However there was
no clarity in his speech on how the same is going to be achieved especially when he
proposed to increase the Plan expenditure.
The good initiatives were the creation of a new industrial corridor - Bengal Mumbai
Industrial Corridor (BMIC ) and expediting the Delhi Mumbai Industrial Corridor
(DMIC) which could provide impetus to the industrial growth. Also further as a sequel to the
Companies Amendment Bill 2012 which provided for forced Corporate Social responsibility (CSR)
various contributions which would qualify as CSR spent in to be notified.
A good initiative coming from the budget was the desire to look at avenues to reduce the transactions
cost of doing business in India by constituting a panel. Also some measures have been made to
provide impetus to the Financial markets viz Banking, Mutual Fund and Insurance sector.
While the Finance Minister has consciously avoided any increase in the tax rates to ensure India
remains competitive in the global market, in fact the effective tax rates of corporate taxpayers in India
will increase on account of increase in the surcharge rates. Further, in line with the news reports
floating for the past one month or so, the Finance Minister has introduced a surcharge of 10% on the
super rich (ie persons excluding companies having taxable income in excess of INR 10 million).
However the only silver lining appears to be the statement of the Finance Minister that the same will
be applicable for one year.
The relevant amendments proposed in the budget on the direct tax front are listed below:
1. Taxability of income arising on buyback of shares
The Finance Minister has expressed an apprehension that Indian companies are avoiding the liability
to pay Dividend Distribution Tax (DDT) by undertaking profit repatriation in the guise of buyback of
shares rather than declaration of dividend. The Finance Minister has thus proposed to levy a final
withholding tax of 20% on the profits distributed by unlisted companies to shareholders through
buyback of shares. This introduction seems disturbing for the following reasons:
A plain reading suggests that taxes would be levied on the excess of consideration paid by the
Indian company over the sum received by it on issue of shares. In such a scenario, the Indian
Company would need to disregard the price at which shares may have been acquired by
shareholders through secondary purchases (rather than initial subscription to shares) for
computing the amount on which taxes are payable;
If the intention of the Finance Minister is to bring parity between dividend distribution and buyback
of shares, the final withholding tax should have been restricted to the rate prescribed for DDT;
Further, in a cross border scenario, the shareholders may not be able to get credit of taxes
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4. withheld in India akin to DDT since this tax is proposed to be levied on the Indian company rather
than the shareholders, which could add to the cost of operating in India for the overseas investor.
2. Rationalisation of General Anti Avoidance Rules (‘GAAR’)
Bowing to the outcry of global investor community, the Finance Minister has paid heed to the
recommendations of the Shome Committee. Accordingly, the Finance Minister has deferred the
applicability of GAAR by two years. However, on an overall reading the actions of the Finance Minister
are not adequate. The Finance Minister has completely ignored the recommendations of the Shome
Committee relating to (i) grandfathering of investments; and (ii) providing a suitable monetary threshold
for the applicability of GAAR to keep small taxpayers out of the net. Accordingly, this would be viewed
as only half a job well done by the Finance Minister.
3. Lower tax rate on dividends received from foreign companies and relief in respect of DDT
On a positive note, the concessional tax rate for dividends received by Indian companies from
specified foreign companies has been extended by one year. Further, in the interests of equity, it is
proposed that no DDT would be levied on the dividends distributed (in the same year as receipt of
dividends) by such Indian Companies to the extent of dividends received from the specified foreign
companies. While this is a welcome development, from a mid term outlook, it might be more beneficial
if the Finance Minister upfront provides a 2-3 year window for the dividends received from foreign
companies rather than providing an extension on an annual basis.
4. Boost for long term infrastructure bonds
With a view to widening the financing avenues for Indian companies issuing rupee denominated long
term infrastructure bonds, the Finance Minister has proposed that the concessional tax rate of 5% on
interest paid on long term infrastructure bonds would apply to Indian rupee loans as well subject to
fulfilment of prescribed conditions. This is a step in the right direction since it should provide greater
access to cheap financing options for cash starved Indian companies.
5. Indian Transfer Pricing regulations
The Safe Harbour Rules (the enabling provisions for which were introduced in Budget 2010) are
expected shortly, which can provide certainty of tax outflows and avoid litigation costs & efforts.
6. Investment Allowance
As an impetus for industrial growth a deduction of 15% on acquisition of new plant and machinery
would be allowed to tax payers engaged in the manufacture or production where the amount of
investment is above INR 100 Crores spread over a period of 2 years. This deduction can be claimed
over a period of 2 years depending upon the investment to be made.
This should be considered as a welcome move in an otherwise lacklustre budget. Providing a
deduction of 15% over and above the depreciation rate should work as a good incentive for the
manufacturing industry.
7. Withholding Tax on transfer of immovable property
Withholding Tax at 1% on payments made to resident for purchase on an immovable property where
the consideration is in excess of INR 5 million.
These provisions would cause hardship to the Individual tax payers who reinvest the entire sale
proceeds into house property for claiming deduction. Taxpayers claiming deduction for reinvestment
of capital gains would now have to claim refunds from the Government. Further as the transaction for
above 30 lakhs is also reported in Annual Information Report (AIR) I am not sure what good would be
achieved by increasing the additional compliances on tax payers.
8. Tax Residency Certificate
Earlier a Tax Residency Certificate (‘TRC’) was a sufficient documentary proof to claim beneficial
provisions of the Tax Treaty. However, now the Finance Minister has amended the provisions of the
Income Tax Act to state that TRC would be necessary but not sufficient proof to claim Tax Treaty
benefits.
This amendment once again overrules the Supreme Court Ruling in the case of Azadi Bachao Andolan
and Circular No 789 dated 13th
April 2000 issued by the Central Board on Direct Taxes (in context of
investments from Mauritius) wherein it was clarified that TRC should be a sufficient proof to claim
Treaty benefits. This amendment would result is severe hardship on foreign tax payers for claiming
Treaty benefits in India.
9. Royalty
Tax on Royalty and Fees for Technical Services has been increased from 10% to 25% under the
Income-Tax Act.
In order to align the provisions of the Income Tax Act with various Treaties, the Finance Minister has
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5. increased the rate of tax on royalties and fees for technical services received by Foreign Taxpayer to
25%.
Most of the Tax Treaties have a tax rate of 10% or 15%. However, the increase in these rates under the
Income Tax Act would cause severe hardship to Foreign tax payers who are located in the countries
which do not have Tax Treaty with India.
It would be pertinent to note that on one hand the Finance Minister mentioned that beneficial provisions
of the Tax Treaty would prevail, however on the other hand he has said that TRC would not be a
sufficient proof to claim Tax Treaty benefits which would cause hardship to claim treaty benefit.
Mr. Sudhir Nayak
Partner, SKP
“It is expected that in 2013 the rules may be notified. It seems the mark up is likely to
be in the range of 20% to 22% on outsourcing units. Norms are also likely to be
notified for loans and guarantee on the rate of interest or guarantee fee to be
charged. Norms are also expected for auto ancillary and contract research &
development units.
“Many tax authorities apply safe harbour as a better administrative practices rather than a means of the
best arm’s length result to achieve certainty and reduce compliance and administrative burden. While
this will benefit tax payers in reducing compliance cost, tax authorities also can focus their limited
resources on bigger and complex transactions.
Safe harbor norms are prevalent in Mexico, Australia, Switzerland and Belgium
In fact recently OECD in their paper on Mutual Agreement Procedure and APA has recommended
adoption of safe harbor norms between competent authorities of the two tax jurisdiction while resolving
/ preventing the dispute. As per press report USA and Canada are going to adopt such norms for not
so complex transactions.
However, the margins should not be rigid and safe harbor mark up should not deemed to be the arm’s
length price. "If a company reports a margin which is less than the stipulated benchmark, the authorities
should give the enterprise an opportunity to defend its case."
Mr. Samir Gandhi.
Partner, Deloitte Haskins & Sells
On the one hand, the FM unhesitatingly accepted that the only way to bridge the
current account deficit (“CAD”) was promotion of FDI/FII/ECB into India. On the other
hand, by introducing following amendments, the FM may achieve just the opposite of
the desired objective.
i Newly proposed sub-section (5) to section 90 of Income-tax Act, 1961
The sub-section proposes to makeTRC as a necessary but not a sufficient condition for granting
double tax treaty benefit. Effectively this amendment withdraws CBDT Circular No. 789 which had even
been approved by Supreme Court in Azadi Bachao Andolan (263 ITR 706). As everybody knows a
significant portion of FDI/FII investments into India are routed through certain jurisdictions like Mauritius
in particular, this innocuous looking sub-section may hurt the FDI/FII investment into India. One may
expect lot of avoidable tax litigation with no certainty of tax benefits to the nation.
ii Newly proposed 20% tax on share-buyback
Here also, the FDI investment through jurisdictions like Mauritius is likely to be adversely impacted as
the investors claiming benefit of India’s double tax treaties with these jurisdictions would not be able to
claim a tax benefit on share-buyback which they were earlier entitled to.
(The views expressed above are author’s personal views. )
Mr. Sunil Agarwal.
Senior Partner (Taxation), AZB
The FM has proposed a very few changes.
(1) Investment Allowance for two years at 15% of the investment in new Plant &
Machinery over and above the normal depreciation is very attractive. However, the
assessees making investment of more than Rs. 100 Cr. Will be able to claim this
allowance. The proposal is in right direction at the stage when the share of Service Sector in GDR is
increasing and that of manufacturing sector is reducing. No economy can progress only with the
progress of service sector.
(2) Raising the rate of TDS on Royalty and FTS to non resident from 10% to 25% is a painful surprise.
Even where a country is covered lower rate of TDS in DTAA, non residents who will not be able to
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6. furnish TRC in the prescribed form will be badly hit by this amendment, if it passes as in their case the
deductor will have to deduct tax at 25%. DTAA with some countries have hifger rate of TDS on Royalty-
FTS, e.g., USA which has 15% rate of TDS under the treaty.
Mr. Nihar Jambusaria
Sr. Vice President-Taxation, Reliance Industries Limited
“The much awaited Union Budget, 2013 has been tabled by the Hon’ble Finance
Minister today before the Parliament. The arduous task before the Finance Ministry
whilst tabling the Finance Bill, 2013 was to tackle the impact of global economic
downturn and the focus was therefore, on resolving to austerity measures. Therefore,
the Budget this year should have been a growth budget based on the principles of
sustainable development.
As stated in the Budget Speech, the objective of this year’s proposals is to create a balance between
the economic policy on one side and economic welfare on the other. On the revenue side, the FM has
sought to align the same by proposing to increase the Tax GDP ratio over the last year, mainly by way
of increase in / levy of surcharge rates for companies and the super rich having income above Rs. 1
crore.
On the direct tax front, the announcement of placing of the revised Direct Taxes Code Bill before the
end of the Budget session for consideration hopefully would help achieve the initial objective behind
the introduction of a new Code of ensuring ensure clarity and stability in the tax system especially
considering the commitment towards achieving this by revising the Code for the second time post its
first release to the public. Incentives to manufacturing industry to invest in huge capital intensive
machinery and plant by providing an investment allowance of 15% in addition to normal depreciation
available is a welcome move. Changes on taxation of buyback of shares by imposing an income tax on
companies undertaking buyback at 20% is bound to bring in new concerns and issues in the applicable
framework. Detailed provisions for tax treatment of securitization trusts and Alternate Investment Funds
has also been introduced which is move keeping in view the changing financial industry and the
markets and efforts to bring in clarity here is commendable.
On the aspect of ensuring favorable foreign investment climate, notification of safe harbor rules in
transfer pricing which has been long awaited has been stated to be released shortly. Furthermore, the
provisions on General Anti Avoidance Rules (GAAR) have been amended largely in line with the Expert
Committee Recommendations to address the investors concerns. An important aspect under
consideration for investors is the increase in the tax rate for royalties and the additional tax imposed on
the company on buyback of their shares as would create a direct impact on the amounts being
repatriated to foreign companies.
Though the Hon’ble Finance Minister started the Budget Speech on the note of ensuring clarity for
investors and proposing to clear the present ambiguities on FDI vs FII, no mention has been made in
the Speech or the fine print of the Bill on the provisions relating to indirect transfers introduced last year
even though great assurance was being offered prior to the announcement of the Budget.
On the indirect tax front, Budget 2013 has not proposed any change in normal rates of excise duty and
service tax which is currently 12 %. Also, peak rate of basic customs duty for non-agricultural products
have also been retained at of 10 %. Various concessions in customs / excise duty have been notified
for industries in distress and increased rates / new levies are proposed on various goods including
high-end luxury products. No major changes are proposed under service tax regime to maintain stability
in tax regime. A Voluntary Compliance Encouragement Scheme’ has been proposed to be introduced
for defaulter for the period from 1st October 2007 till December 31, 2012 to defaulters to file returns
and pay tax dues.
In summary, it can be stated to be a balance budget as no major levies have been proposed to hurt the
taxpayers sentiments and no major incentives have also been provided. Furthermore, non introduction
of any sector specific reforms or profit based incentive could be due to the reason that the Direct
Taxes Code Bill and the Goods and Service Taxes are back in the radar. However, no amendments /
clarity on the retrospective provisions relating to indirect transfers may have an impact on foreign
investment inflows into the country.
Mr. Krishan Malhotra
Head (Tax), Amarchand & Mangaldas & Suresh A. Shroff & Co.
Budget’13 – Not a Game Changer
“Roti, Kapda aur Makan” are not sufficient to fulfill the needs of modern India. Mr.
Chidambaram set out to garner popular mass support by his generous expenditure
outlay in key sectors like education, health, infrastructure, sanitization and rural
development; however, the country needs far more than just promises. While the nation looked on with
keen interest for economic and tax reforms, Mr. Chidambaram had in store a lukewarm and ‘safe-bet’
Budget.
The reaction of the markets post the budget speech has less to do with what was said and more to do
with what was unsaid. While there have been positive steps proposed for infrastructure, real estate,
banking and capital market, there was no action to clarify the misdoings of the retrospective
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7. amendments and the back-door entry of Tax Residency Certificate (‘TRC’) is not something that would
largely attract investments back into India. Domestic Transfer Pricing provisions stay the way Mr.
Mukherjee had them and the Budget has no clarifications that were much needed. On one hand, the
high surcharges and taxes on luxuries have made sitting ducks of the more affluent class and on
another hand, the expenditure allocation would mean something to the poor only if ‘Direct Benefit are
actually transferred’ to them.
Budget’13 has nothing for the aam aadmi and while we are promised a ‘non-adversial tax regime’ the
proposals don’t seem to be in line with the spirit of the charged budget speech. Overall, coming from
Mr. Chidambaram, this Budget has been more for the socialist rather than the Economist. Whether this
pragmatic shift in approach is attributable to the upcoming elections or not – is best left unsaid.
Mr. Anish Mehta
National Head, Tax & Regulatory Services, Haribhakti & Co.
Considering the recent spate of transfer pricing adjustments and few other crucial
retroactive adjustment it was important to re-ignite the investors’ confidence in India.
Consequently what was anticipated from the budget was clarity on the most debated
issues in transfer pricing– domestic transfer pricing, share valuation and intangibles.
Further, the wave of optimism swept when the Finance minister quoted in its first part
of the speech - “Investment an act of Faith”. However, all the enthusiasm came to an end when the FM
did not even remark on the highly debated subject “transfer pricing”. This act of the government to stay
away from such controversial issues could either mean that they do not believe that the recent
adjustments around transfer pricing truly hold merit and may get rectified through the legal process or it
could be in a phase to understand the core changes required to bring certainty in areas around
valuation of intangibles or share transactions including their taxability aspect. However, from the tax
payer perspective it has not assuaged the investors’ sentiments. The only ray of hope is the
announcement of the release of circular on safe harbour provisions for IT/ITES and contract research
companies on the basis of the Rangachary committee. However, the same is also very vague
considering that some reports are yet expected by end of March this financial year. Though overall the
tone of the budget is fairly reasonable considering intention to introduce modified GAAR that too in
2016, bringing in the DTC during this budget session etc, tackling some of these transfer pricing pain
areas could have gone a long way in reducing the anxiety level amongst the taxpayers from an
international perspective.
Ms.Karishma R. Phatarphekar
Partner & Practice leader, Grant Thornton India
Buy back from treaty country may continue to have tax protection. Eg Singapore,
Mauritius. Need to see fine print whether treaty override exists. IDF bonds int in INR
may be subject to 5% TDS. DDT on div redistributed from Foreign Dividend will
reduce overall DDT for progressive global Ind Cos. GAAR amendments as
expected. Will wait for new DTC. In budget session. Best global practices to be part
of tax administration reforms. Hope to see what is coming to address non adversial
tax regime , clarity in tax laws,etc
Mr. Sunil Kapadia
Partner, E&Y
Direct taxes – The complete absence of any referral or any provision on the taxation
of Indirect transfer of shares and the retrospective amendments is a major gap in
terms of the expectation of foreign investors and the tax community at large.
Indirect Taxes – Given the constraints of the current credit system, the Finance
Minister has rightly not raised the rate of Excise Duty and Service Tax. The introduction of an Amnesty
scheme from 2007 offers an option to address several interpretational controversies by the payment of
tax while saving interest and penalty. The introduction of a provision for arrest on Service Tax issues is
not a welcome step as it will potentially be subject to misuse when there is a revenue crunch and the
tax officers are under pressure for collection.
Mr. Rohan Shah
Managing Partner, Economic Laws Practice
Overall, the Finance Minister has attempted to present a balanced budget keeping in
view the main focus of bringing the Indian economy back on the growth path in an
inclusive manner, besides providing clarity and certainty of tax laws and fair
administration thereof.
While an additional tax of 10% on ‘Super-rich’ is something which may pinch, the FM seems
constrained to levy this tax to collect additional revenues for the Government which is faced with the
problem of high fiscal deficit. Thankfully, he has clarified that this additional tax of 10% will be there only
for one year (FY 2013-14). Also, the threshold limit of Rs Crore for levying this tax is a fairly large
threshold.
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