Budget 2014: General Insurance Firms Want Tax Sops to Boost Health Cover for SMEs

India's Rs 70,000-crore general insurance industry has demanded tax exemption in the forthcoming budget to give boost to corporate health plans of SME employees and retail catastrophe cover.

"The industry also wants some kind of benefits for personal line insurance too, which includes personal accident cover and householder's insurance," R Chandrasekhran, secretary general of the General Insurance Council, which is the official representative body of the general insurance industry, told PTI in Mumbai.

A GCI-led top delegation had met Financial Services Secretary G S Sandhu in Delhi recently to discuss a range of industry issues in the run-up to the budget that will be presented early next month, he added.

The GI Council explained to the ministry that at present there are some tax exemptions available to the retail health insurance customers separately. If they take cover for themselves and for their parents, still it is not sufficient as medical inflation has shot up.

The non-life insurers have raised a demand for raising the limit of income tax rebate under Section 80D for providing health cover. Currently, there is a ceiling of Rs 15,000 per annum.

"We have urged that this limit must be increased to Rs 50,000, considering the need for an increase for health cover for common citizen and their families," Mr Chandrasekhran said.

"The idea is to increase the penetration of non-life insurance," he said, adding that the share of non-life insurance to the GDP is a mere 0.80 per cent now.

The council has also proposed to provide tax exemption to the buyers of 'catastrophe cover' as it will encourage people to buy such covers where insurance industry can bear the losses in case of catastrophe.

At present, government is almost paying from tax payers' money for any losses out of natural disasters as people are not accustomed to buy such cover. "Almost 85 per cent of the catastrophic losses in the country are uninsured. If through tax exemptions such covers can be encouraged, it will reduce the burden on the public coffers and help develop the general insurance industry," he said.

"We have suggested a minimum amount of catastrophe cover be made mandatory and the same should be eligible for tax exemption."

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Government may increase individual tax benefits to boost household savings

The government could increase the tax benefits it offers to individuals, encouraging people to save after the Reserve Bank of India and stock market watchdog Sebi made a strong pitch for raising the limit to encourage financial savings to wean people away from gold.

"Household savings need to be encouraged.... Tax exemption is seen as an important tool in that respect," a government official privy to deliberations said.

A final decision is, however, expected only after taking revenue considerations into account as the government has accorded top priority to fiscal consolidation. Prime Minister Narendra Modi has already warned of tough measures to repair the economy.

"There is a need to encourage savings, but it will have to be balanced so that revenues are not dented considerably," said the official, who did not wish to be named.

Decline in financial savings because of high inflation had caused current account deficit to widen to a record 4.8% of GDP in 2012-13 as households rushed to buy gold to hedge against rapid price rise.

Massive curbs on gold drastically reduced imports and helped narrow current account deficit to about 2% of GDP in 2013-14, but policymakers are worried that calibrated reduction in import duty on gold that is set to begin this budget could increase demand for gold again. Higher financial savings are also needed to lower interest rates and fund massive infrastructure investment that the government has planned. Economists say tax benefits will encourage financial savings.

"This will direct savings from physical assets to financial instruments that is much needed," said DK Pant, chief economist, IndiaRatings.

The regulators have asked the government to raise the 80C exemption limit, under which Rs 1 lakh is reduced from total income for the purpose of calculating tax. Individuals can claim tax exemption for investing in provident fund, national savings certificate, five-year fixed deposits, repayment of principal amount of home loans, children's tuition fee, public provident fund, some mutual funds and premium paid on a life insurance policy as part of the 80C basket.

The total estimated tax revenue loss on account of this incentive in 2012-13 was Rs 30,662 crore. "A number of instruments have been added to this basket but without raising the limit....Some more space is thus required to be created," said the official. For instance, over the years, spending on school fee and housing loan principal have been included in the basked, leaving less room for financial savings. One of the options is to increase the limit by creating an addition for infrastructure bonds, which was the case earlier. Sebi has suggested that the Rajiv Gandhi Equity Savings Scheme be done away with as it has not taken off.

The finance ministry is also of the view that the scheme needs a total revamp as it is too complicated and has failed to meet the objectives it was introduced for.

The previous UPA government had announced the RGESS in the 2012-13 budget, offering 50% tax rebate to new retail investors who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 12 lakh.

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Budget may bring relief to retro-tax victims

On June 9, President Pranab Mukherjee, while addressing a joint sitting of the Parliament, outlined the new government’s economic vision, and said it would “embark on rationalisation and simplification of the tax regime to make it non-adversarial and conducive to investment, enterprise and growth”.

The irony must not have been lost on those present for it was one of Mukherjee’s own decisions -- when he was finance minister in the previous UPA government -- during budget 2012 that not only sent shockwaves through India Inc but is also now perceived by many to have contributed greatly to the investor nervousness that followed during the subsequent economic downturn.

Then, the government had carried out a retrospective amendment to the Income Tax Act that resulted in the creation of multi-billion-dollar liabilities arising out of several business decisions taken in the past.

Key among these were tax demands that were served upon multinationals Vodafone, Shell and Nokia that ran into thousands of crores -- these were then contested and court cases ensued since.

Along with corporates, the BJP then rightly criticized the then government’s move, accusing it of indulging in “tax terrorism” and saying the decision to lay retrospective claims chased away jittery foreign investors.

Even during the election trail, Narendra Modi had said the government shouldn’t take decisions with retrospective effects, adding that such “defeated the purpose” of creating confidence in the economic system.

With BJP now at the helm, finance minister Arun Jaitley will now have a chance to walk the talk.

The issue was also reportedly a key discussion point in a recent meeting of corporate captains and the finance minister recently, with the former calling for a “non-adversarial and conducive tax regime”.

Already, there have been reports the government is likely to modify the controversial amendment that led the way to retrospective tax demands.

Any such move, while letting go of a claim of about Rs 30,000 crore for the government, would go a long way in boosting investor confidence in the country.

In fact, Vodafone India, one of the most high-profile victims of the retrospective tax demand, had recently made it clear it would consider coming out with an initial public offering once the case was settled.

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Tax on PF withdrawal depends on account holder’s income slab

I had worked with a firm for three-and-a-half years before I quit. If I have resigned in the previous financial year (FY) and want to withdraw my provident fund (PF) in the current FY, will the company issue a tax certificate? Also, if I have no other source of income in the current year. Can I claim tax refund as a salaried employee would? —Venkatesh Iyer Yes, the withdrawal of the accumulated balance from a recognized PF triggers tax liability if the employee has not rendered continuous services for five years or more to the employer. While computing the continuous services of five years, the period of previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account of the new or current employer. We have assumed that your job with the previous company was your first job, or you had not transferred your PF balance with your earlier employer, if any, to the PF account. As the total years of service with the company is less than five years, withdrawal of accumulated PF balance will be taxable in the FY of withdrawal. The total of employer’s contribution plus interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C for your own contribution to the recognized PF shall be taxed. The interest on your own contribution shall be taxed as “income from other sources”. The tax rate would depend on your applicable income slab in each of the FY(s) during which PF contributions were made. Further, surcharge and education cess, shall also be applicable for each of the FYs. Accordingly, since the withdrawal of PF will be taxed at special rates (which relates to the tax rates applicable in each of the FY in which the initial contributions were made), you would be required to pay tax irrespective of the fact that your taxable income considering other income is below basic income exemption limit applicable for the FY of receipt of PF accumulations. However, you would be eligible to claim relief under section 89. Accordingly, you would also be required to file the tax return reporting the withdrawal of PF, the taxes paid and the relief claimed. If the employer maintains a private PF trust, the tax would have been deducted at source. In this case, you will receive the Form 16 issued by the PF trust depicting the taxable income and taxes deducted thereon. However, if the PF balance is maintained through Regional Provident Fund Commissioner, you may have to report the income yourself and pay taxes accordingly.Further, withdrawal of the PF will be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which requires you to have a cooling period of two months.

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A resident’s salary in NRE account is taxable in India

I just started my career in the merchant navy. I get my salary in my non-resident external (NRE) account but in Indian rupees. As you know that a seamen comes back to India after completing his contract and waits for another contract. Do I have to pay any tax on that income? Moreover, I want to file my returns in India in the NRE category so that I can take a loan as a non-resident Indian (NRI). —Savio Perriera In the case of a resident Indian, the entire income, irrespective of where it is received or accrued or arises, will be taxable in India. But, for a non-resident, the taxable income is restricted to income that is received in India or is deemed to be received in India, or income which accrues or arises in India or income which is deemed to accrue or arise in India. If you are a resident of India, the entire salary earned by you and credited to your NRE account will be taxable in India. Conversely, if you are a non-resident, the taxability would depend upon whether the salary credited to your NRE account is considered to be received or deemed to be received or accrue or arises or is deemed to accrue or arise in India.The Agra Bench of the Income-tax Appellate Tribunal (ITAT) in a recent judgment in the case of Arvind Singh Chauhan vs ITO (ITA No. 319 and 320/Agr/2013) held that the income earned by the individual from a shipping company and credited to the NRE account in India is not taxable as the same does not accrue or arise in India and cannot be deemed to accrue or arise in India as the services were rendered outside India. Further, the ITAT held that the income should also be considered to be received outside India as the assessee was in lawful right to receive the salary at the place of employment outside India and as a matter of convenience the salary was thereafter transferred to India. The relevance and applicability of this judgment would depend upon the facts of your case. I suggest that you consult your tax adviser to understand the implications correctly. With respect to the income tax return of income, you may note that in case you have taxable income beyond the exempt limit of Rs.2 lakh you will be required to file a return of income. I have been an NRI for 10 years. I started a fixed deposit (FD) in India by transferring money to my sister’s account. Is there any tax implication for the same? —Jagdish Narain As the FD was started by transferring money to your sister’s account I presume that it’s in your sister’s name. Hence, the interest earned on it would be taxable as “income from other sources” in your sister’s hands. The bank would have also withheld taxes from such interest income and issued a Form 16A in the name of your sister, the credit of which can be claimed in the return of income filed by your sister.Queries and views at mintmoney

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Budget 2014: Government may increase individual tax benefits to boost household savings

The government could increase the tax benefits it offers to individuals, encouraging people to save after the Reserve Bank of India and stock market watchdog Sebi made a strong pitch for raising the limit to encourage financial savings to wean people away from gold.

"Household savings need to be encouraged.... Tax exemption is seen as an important tool in that respect," a government official privy to deliberations said.

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Union Budget 2014-15 may be tabled by July 11

Budget session of Parliament is expected to start from the 2nd week of July amid indications that the Union Budget 2014-15 could be presented by July 11.

Parliamentary affairs minister M Venkaiah Naidu told reporters that plans are afoot to start the Budget session in the second week of July. The Cabinet will decide the dates, he said. Naidu also said that the deputy speaker will also elected in budget session.

"That is the system", remarked Naidu when asked whether the practice of presentation of Rail Budget, economic survey and General budget in the first week of the Budget session will be followed this time.

The vote-on-account budget approved by the previous Parliament ends on July 31 and a new budget has to be in place before that date.

Naidu steered clear of questions on the issue of Leader of Opposition status to Congress saying the matter is with the Speaker. "The matter is with the Speaker. I do not want to say anything about it", he said.

He said that the election of deputy speaker will take place during the Budget session.

The ordinances promulgated recently in the wake of the division of Andhra Pradesh and the one facilitating the appointment of former TRAI chief Nripendra Misra as Principal Secretary to the Prime Minister will be taken up during the Budget session.

Naidu said the just-concluded session was fruitful. He appealed to the opposition to cooperate with the government inside and outside Parliament after Prime Minister's assurance that his government will not go by numbers but would take everyone along. He said the "just and meaningful" demands of the opposition will be given due consideration. 60 bills are pending in the Rajya Sabha.

The government also dubbed as "unfair" the Congress comment that Prime Minister Narendra Modi's first speech in Parliament had "lack of content" and was "repeat of rhetoric."

"It is an unfair comment. President's address is a broad statement of intent and detailed action plan is (reflected) through various budgetary provisions. "You cannot expect wonders in one week or ten days...(the talk of) prices rising, temperatures rising...really sad," Naidu said.

On Wednesday, Congress spokesperson Randeep Surjewala had said that the Prime Minister should have unveiled the road map for delivering on promises made in the President's Address to Parliament. "Instead of making promises, time has now come for concretised action...The reply of the Prime Minister could have had far more content and a plan and a roadmap for delivery of the promises that the President had made in his Address to the Joint Sitting of Parliament," he had said.

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Budget 2014: India Inc to seek stimulus extension, less tax tumult

India Inc, in its first pre-budget consultation meeting with the Narendra Modi government, would urge finance minister Arun Jaitley to rationalise tax rates on corporates coping with economic slowdown and raise thresholds for personal income tax payers in a bid to boost consumer sentiment dented by high inflation.

Jaitley is scheduled to meet representatives from 20 chambers of commerce and industry on Friday. ET spoke to top officials in three leading industry bodies, the Confederation of Indian Industry (CII), Ficci and Assocham to glean their key submissions to the new FM.

Terming an early implementation of the goods and service tax (GST) as a surefire means of reviving investor sentiment and putting the economy back on track, CII president Ajay Shriram said that "nothing can be better than a well-crafted GST" as a stimulus to the economy.

At the same time, CII is expected to push for an extension of the short-term stimulus package granted in the interim budget by previous finance minister P Chidambaram this February. The stimulus that involved reduction of excise duty on certain goods in the range of 2 per cent to 6 per cent till June 30, 2014, the industry would like to see continuing till March 2015.

Assocham president Rana Kapoor is expected to suggest that the government raise critical resources and aid fiscal consolidation by using a holding company to hold the Centre's stake in public sector banks and disinvesting the significant stakes in private firms like ITC, Larsen & Toubro and Axis Bank held by the government through the Specified Undertaking of the Unit Trust of India or SUUTI.

CII would also call for an aggressive approach to disinvestment, with a suggestion that the government stake in public sector banks be diluted to 51 per cent and subsidy expenditure be rationalised by at least 10 per cent to save about Rs 25,000 crore and improve India's fiscal deficit.

The industry chamber is also expected to reiterate its demand that investments over Rs 500 crore be considered by the Cabinet Committee on Investments set up by the previous government to expedite projects worth lakhs of crore that are held up for want of clearances.

The Manmohan Singh government had set a threshold ofRs 1,000 crore for an investment to be helped by the government and had rejected the demand to reduce the threshold first made in December 2013.

Ficci president Sidharth Birla is expected to tell Jaitley that the new government's first budget presents an opportunity to convince investors that India can offer a stable and consistent tax regime. Such an environment would need a significant shift from the current scenario where tax revenues are not keeping pace with targets and taxpayers are facing the wrath of aggressive revenue authorities looking to meet their targets.

CII is also likely to point out a major flaw in the stimulus package that the UPA had announced in February. "In the past, every time when the government changed the excise duty on vehicles, corresponding change had been made on the input rate to avoid mismatch. This had not been done in the stimulus package," said Shriram.

While excise duty on commercial vehicles has been reduced, excise on most of inputs used in manufacture of such vehicles continues to be at a basic rate of 12 per cent, resulting in an inverted excise structure.

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How to detect Fake Currency Notes – Paisa Bolta hai

Almost every country face problem of fake currency circulation but in India this problem is rampant. As per estimate more than 3 trillion fake currency notes are in circulation throughout India. Majority of this notes are printed in country like Pakistan or Bangladesh.

A common man does not know what to do when he gets fake rupee note. The best way is to know how to detect fake currency notes and prevent it from coming to your hands. In order to help common man RBI has taken initiative to launch new website called as

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Enjoy today, but not at the cost of your tomorrow

In this world of instant gratification—fast food, power yoga, lose-weight-quick regimes, get-rich-quick products, retail therapy to dispel blues—our motto is why delay till tomorrow what we can possess today. It’s good to be aspirational, and even greedy, about one’s goals. But some things take time. Most of us prefer to live for today than plan for tomorrow. And with easy financing options available, our wishes have been granted wings. During all these unnecessary buying transactions, the only one laughing its way to the bank is actually the bank itself, or shall I say the tribe of lenders. In the process, our future needs lose. Charlie Munger, the right hand man of Warren Buffett (ranked the world’s third richest in 2013 by Forbes magazine), outlines this dangerous trend: “A banker who is allowed to borrow money at X and to lend it at X plus Y will just go crazy and do too much of it if the civilization does not have rules which prevent it.” This is unfolding in front of our eyes. We get many calls on a weekly basis asking us to take another credit card, or we are congratulated about our enhanced personal loan limit, or we are encouraged to use easy payment options on our outstanding credit card bills. One road trip around Mumbai and you get to view innumerable hoardings advertising simple documentation and instant approvals of personal loans. Day in and day out I meet people from various walks of life who have bought houses far bigger than they can afford, done up their homes in a far fancier way than they can manage, have sent kids for expensive courses abroad without doing sufficient due diligence on the quality of education and the economics involved, or have gone overboard on their vacation budget. So often, these over-the-top activities get funded by an easily available personal loan. And to compound problems, we all are under-invested in asset class like equities, one of the most appropriate options to beat inflation in the long term. We label stocks as being high on volatility, and conveniently ignore the fact that they can deliver promising returns in the long run. We, in fact, stay away from such choices without realizing that at times avoiding these growth options is the biggest risk we are exposed to—the risk of sub-optimal growth of our investments. Moreover, this irrational spending behaviour seeds misunderstanding about money’s acquisition, accumulation and use in the minds of our children. They are nudged towards believing that money comes easy and can, therefore, be spent easily. Since many of our expenses revolve around children, it’s critical that they understand the dynamics of money early in life. Personal loans are one of the most expensive forms of loans available in the market today. Not without reason though. Since these are offered without taking collateral from the client, they are deemed as higher risk. The rates of interest charged can vary from 13% to 17%, depending upon the lender, the income dynamics of the borrower, the credit score of the borrower, the tenor of the loan and the amount sought. Credit score of the borrower in derived after taking into account factors such as types of loan taken, amount of loan sanctioned and disbursed, their dates, defaults if any, repayment history, and others. Such loans can be taken for amounts as low as Rs.10,000 and right up to Rs.10 lakh. These also offer the flexibility of being used for any end-purpose. It’s important that we understand how to tame these loans. Let’s examine two scenarios to find out what different tenors mean in terms of monthly burden and the total amount paid as interest.In both cases, the outstanding amount is Rs.5 lakh, the rate of interest is 15%. In case one, the tenor is 36 months, and the equated monthly instalment (EMI) is Rs.17,333. Overall, 25% (Rs.1.24 lakh) of outstanding amount is paid as interest. In case two, the tenor is longer, 60 months, but the EMI is lower, Rs.11,895. But overall, 43% (Rs.2.14 lakh) is paid as interest. The moral of the story being that wherever possible, try and go for a higher EMI, which will reduce the loan’s tenor. This article is not an attempt to encourage stinginess. The principle aim is to create awareness around spending sensibly. By all means, spend money if you have to and can afford to. However, be watchful that it doesn’t hinder your future day-to-day living. The following Swedish proverb beautifully states the ills of going overboard on expenses, “He who buys what he does not need, steals from his tomorrow.” Money which is nurtured well today will not seize control of our tomorrows.Deepali Sen is a certified financial planner and founder, Srujan Financial Advisers LLP.

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LTCG from house property exempt in specified conditions

I sold a plot for Rs.56 lakh in March 2014, which was bought at Rs.36 lakh (as per the cost of index valuation since it was held for three years). In March 2014, I purchased a plot for Rs.3.5 lakh and have spent Rs.10 lakh on construction till date. How much long-term capital gain (LTCG) tax do I have to pay? —Ajay The LTCG resulting from sale of plot, which has been held for more than 36 months, can be claimed as exempt from capital gains tax by re-investing the net sale proceeds in a residential house as per section 54F, subject to specified conditions. One can claim the LTCG exemption in the proportion of net sale proceeds resulting from sale of old plot of land re-invested into an under-construction property (i.e. new house). Where the cost of new house exceeds the net sale proceeds resulting from sale of old plot, entire LTCG should be exempt from tax. However, where the cost of new house is lower than the net sale proceeds, LTCG is exempt from tax in proportion of cost of new house to the net sale proceeds. Hence, the balance LTCG shall be taxed at 20%. Additionally, if total taxable income in FY14 exceeds Rs.1 crore, surcharge at 10% on basic rate (i.e. 20%) should be applied. Further, an education cess of 3% on basic as well as surcharge (if any) is applicable. One of the specified conditions requires that at the time of claiming LTCG exemption, you should not own more than one house (other than the new house/apartment), on the date of sale of the plot. As you propose to re-invest the net sale proceeds in an under-construction property, it has to be ensured that the construction of new residential property should be completed within three years from the sale date of old plot. Apart from the purchase of new residential plot and Rs.10 lakh spent on construction till date for the new residential house, if you further propose to spend the unutilized sale proceeds on construction, then the unutilized balance sale proceeds should be deposited into Capital Gains Account Scheme (CGAS) before the due date of filing tax return for FY14, which is 31 July. For the LTCG exemption computation, the amount spent on purchase of new plot, the amount spent on construction till due date of filing personal tax return and the amount deposited into CGAS till the due date of filing the tax return will be considered as cost of new property. While the domestic tax law does not explicitly mention that residential house includes a plot, however, reference can be drawn from a circular wherein it is specified that cost of the residential house would include cost of land.Additionally, you could invest the LTCG in specified bonds within six months subject to the cap of Rs.50 lakh per fiscal.

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Digital insurance policies to start soon

As the next step towards digitizing insurance policies, the Insurance Regulatory and Development Authority (Irda) has flagged off a pilot insurance repository system for two months starting July this year. An insurance repository can store all your policies electronically under a single electronic insurance account or e-insurance account. Irda has registered five insurance repositories—NSDL Database Management Ltd, Central Insurance Repository Ltd, SHCIL Projects Ltd, Karvy Insurance Repository Ltd and Cams Repository Services Ltd.As part of the pilot project, all life insurers will have to tie up with all five repositories and change at least 1,000, or 5% of existing individual policies, whichever is less, into demat format. They will also have to issue at least 1,000, or 5% of the total individual policies, whichever is less, issued during these two months in electronic form for each insurance repository subject to a minimum of 500 policies (250 new and 250 existing) per repository. Also, during this period, the note stated, an insurer will not deny any request for conversion of existing policies or for issuance of new policies into electronic format from any policyholder.The pilot launch has been initiated as the response to the insurance repository system was weak. Since the system was started in September last year, only seven out of the 24 life insurers have tied up with all the five repositories so far. Insurers’ reluctance to adopt the system can be largely attributed to the associated costs.“One of the critical factors affecting a smooth take-off of the system is the failure on the part of insurers and repositories in arriving at a price structure commensurate with the scope of services being offered and volumes involved,” Irda said in a statement on the pilot launch.For customers, opening an e-insurance account and subsequently holding insurance in demat form is free of cost, but not for insurers. Further, insurers also have to bear the additional expense of digitizing existing policies, for which they would have paid the policy issuance costs already.Ironing out creasesIrda is reviewing the bottlenecks and will come out with guidelines on insurance repository soon. In the meantime, the pilot project has been initiated so that insurers are able to integrate their systems with those of the repositories to ensure a smooth transition.In terms of remuneration, unless already decided between the insurer and the insurance repository through existing agreements, the fee that the insurer will need to pay to the repository will be capped at Rs.60 for new policies and Rs.40 for existing policies. Irda is expected to come out with the final guidelines along with the timeline soon after the pilot is implemented. “This is a huge development and a positive step for two reasons. One, digitization helps customers hold their financial assets in one place. And second, it allows for a lot of cost saving. Even as the costs (for the insurer) have been capped at Rs.60, I believe it can come down to less than Rs.10 after it becomes mandatory because the repository will save on intermediary cost,” said P. Nandagopal, managing director and chief executive officer, IndiaFirst Life Insurance Co. Ltd.An e-insurance account can be opened either directly with any of the insurance repositories or through an insurer. At the time of selling a policy, the insurer will have to hand out the e-insurance account form and provide the option of choosing any of the repositories. After the account is opened, the insurer will collect the account details from the repository and feed them into the policy document. Existing customers can approach the insurer and fill up the account opening form themselves. The insurance repository will hold the policy in electronic form in one place. Digitizing your insurance policy has many benefits—no risk of losing documents; all policies are held in one place under one e-insurance account; and your know-your-customer (KYC) requirements are taken care of as well. This means that the next time you buy an insurance policy, you needn’t go through the KYC process again; the insurer can get the details from the repository you hold an account with. Plus, it’s easier to effect changes. For example, if you want to change your address, all you need to do is change it in your e-insurance account and the repository will update it for all your policies. “Apart from easy access, the potential of the e-insurance account is huge. Say, a policyholder has three policies, but the nominee is aware of only one. While making a death claim, the insurer would log the claim and this will get updated in the policyholder e-insurance account as well,” said S.V. Ramanan, chief executive officer, Cams Repository. “This will help us in reaching out to the authorized representatives of the policyholder and inform them of other policies in the account,” he added.Insurance repositories will also be responsible for providing mandatory information such as status of policy, net asset value and bonus, nominee, premium due date, the grievance tracking system, transaction history and claims status history, among other things, in a format that can be downloaded and printed. Insurance repositories will also need to send SMS and email alerts on premium and maturity claim updates. For now, the demat facility is applicable to life insurance policies and in due course will be extended to non-life policies as well.

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Receipt of shares from a relative does not constitute income

My wife and I are non-resident Indians (NRIs). A few years back, I had opened a demat account for my wife. But the company did not inform us that NRIs cannot hold shares in an ordinary demat account. So I opened another demat account in the name of my mother-in-law and transferred the shares into it (off-market mode). The nominee for this demat account is my wife. Now, in case of death of my mother-in-law, what is the correct procedure to follow up regarding the ownership of these shares or how to claim them and the tax implications? —Faizan Khan Your wife will be required to request the depository participant in writing by making an application along with a notarized copy of the death certificate issued by the competent authority and other necessary documents to transfer the securities covered by the nomination to her demat account. In case your wife continues to be an NRI at the time of transmission, it will be subject to the applicable exchange control regulations at such time, which may require her to open and maintain a non-portfolio investment scheme account. As per the existing laws, any receipt of shares by an individual from a relative does not constitute income under the head “other sources”. However, you will have to check the applicable laws at the time of the transmission to understand the correct tax and regulatory implications. I have the power of attorney to operate my brother’s (an NRI) non-resident external (NRE) account. I invested some money in a large-cap fund through this account. How will the tax deducted at source be calculated? —Nishant Garodia The tax treatment of income from equity-oriented large-cap funds depends on various factors such as residential status of the investor, nature of income, period of holding of the capital asset, and others.Dividend income received from mutual funds are exempt from tax under section 10(35) of the Income-tax Act, 1961. Like-wise, long-term capital gains arising from transfer of a unit of an equity-oriented fund where the transaction is subject to securities transaction tax (STT) is exempt from tax. If your brother receives either dividend income or long-term capital gains as detailed above, there should be no tax deduction at source. When the income earned is in the nature of short-term capital gains subject to STT, tax withholding at the rate of 15% (plus applicable surcharge and cess) would be applicable. However, the withholding would be subject to any benefits under the double taxation avoidance agreement which India might have entered into with the country in which your brother is a resident.

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Cost inflation index raised by 9.05%

The Central Board of Direct Taxes (CBDT) has specified a value for the cost inflation index for 2014-15. A cost inflation index helps reduce the inflationary gains, thereby reducing the long-term capital gains tax payout for a taxpayer.

Last year, the index was ‘939’, and this year it is ‘1024’.

This would mean that there has been a 9.05 per cent rise in the cost inflation index for 2014-15.

The index is useful for income-tax assessees in the computation of tax on long-term capital gains (for indexation purposes).

In the previous year (2013-14), the cost inflation index increased 10.2 per cent.

Currently, the income-tax law allows long-term capital gains to be computed after adjusting for inflation.

The cost of acquisition as well as the cost of improvement is adjusted for inflation between the date of purchase and date of sale (through the cost inflation index) before the long-term capital gain is ascertained.

Consumer price index

The income-tax law requires the CBDT to specify the cost inflation index for a financial year after factoring in 75 per cent of average rise in consumer price index for urban non-manual employees for the immediately preceding financial year.

Last year, the CBDT had specified the cost inflation index in early June. This year too it has been done in June.

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Intelligence Bureau report raises fears of repression

 A report by the Intelligence Bureau (IB), targeting non-Governmental organisations, is raising fears among activists that attempts are being made to muzzle dissent.

“We are very much concerned that the ground is being prepared to oppose and to justify discrediting a whole range of popular activities and resistances and to weaken them by highlighting and taking out supposed fallacies of NGOs,” Achin Vanaik, member of the Coalition for Nuclear Disarmament and Peace (India) said.

Vanaik has been named in the report, along with many well known activists, such as political analyst and anti-nuclear activist Praful Bidwai, MG Devasahayam, SP Uday Kumar, Medha Patkar and Karuna Raina. The IB report has reportedly been submitted to the Prime Minister’s Office. Uday Kumar, an anti-nuclear activist, said the report has undermined not just his integrity, but also his safety and he could take legal recourse against the IB.

‘Ánti-national’

The report, which Business Line has access to, mentions several international organisations such as Greenpeace, Action Aid and even Amnesty, besides Indian groups as well as individuals, has alleged that NGOs, which have been termed “anti-national”, are effecting India’s GDP growth by two to three per cent. However, Bidwai countered this by saying research has shown that the cost of environmental degradation, which is the agenda for most of the NGOs mentioned, is costing India 5-7 per cent of its GDP.

Devasahayam, a retired IAS officer and power policy expert, who was involved in protests against the Kudankulam nuclear plant in Tamil Nadu, said the report was baseless and the NGOs were actually carrying out the agenda of the Government itself.

The report alleges that these NGOs are being funded by foreign entities and are derailing the country’s “economic security” with their campaigns against developmental projects such as nuclear energy, coal mining, power plants, hydel projects and others, which have been criticised for not being in line with the agenda for sustainable development.

However, Bidwai refuted the allegation of foreign funding and said CNDP and most other NGOs named in the report are funded through domestic sources only.

The report also says Greenpeace plans to campaign against import of palm oil from Indonesia and dumping of e-waste by IT firms, both of which are seen as major environmental concerns globally.

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Tax treatment: Pension regulator seeks parity for NPS with provident funds

The pension regulator has sought tax exemption for National Pension System (NPS) withdrawals, on a par with provident funds and other superannuation funds, said PFRDA’s officiating Chairman, RV Verma.

PFRDA has told the Finance Ministry that NPS withdrawals should be exempted from tax at the time of withdrawal just as PF withdrawals are at the time of retirement.

“We have pitched for an EEE (exempt-exempt-exempt) tax structure for NPS on the lines of provident funds. Currently, we have an EET (exempt-exempt-tax) structure for NPS and this reduces the attractiveness of this product,” Verma told Business Line.

Making NPS attractiveEEE, which offers tax exemption at every stage — initial contribution, accumulation and withdrawal — would enhance the popularity of NPS, he added.

Parity on the tax front with PF coupled with a likely increase in the overall deductible savings limit (currently the composite limit of ₹1 lakh under Section 80C) could increase the popularity of NPS this fiscal year, he said.

Betting on these incentives becoming a reality in the Budget, PFRDA is now targeting a near three-fold increase in the NPS corpus, taking it to about ₹1.5 lakh crore by March 2015.

NPS corpusAs of June 7, the NPS corpus stood at ₹56,000 crore, a 9.8 per cent increase over the level on May 7.

PFRDA also expects the NPS subscriber base to go up to 15 million by March 2015 from the current level of 68 lakh subscribers, he said. Verma expects the ramp-up in both corpus and the subscriber base to come primarily from the “corporate” segment, which currently accounts for just 5 per cent of the corpus.

“We are also promoting NPS in a big way through commercials and other activities,” he said

Nearly 90 per cent of the current NPS corpus comes from the contributions of central and state government employees.

The PFRDA Act was notified in February this year.

The current fiscal will be the first full financial year in which PFRDA will have full statutory backing.

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PM to meet Commerce, Revenue Secretaries to sort out SEZ tax issue

 Prime Minister Narendra Modi is scheduled to meet the Secretaries of Commerce and Revenue on Saturday, to discuss issues pertaining to Special Economic Zones (SEZs), including restoration of tax benefits, among others.

Modi met Commerce Minister Nirmala Sitharaman on Friday to get an update on concerns of the Indian industry based on her discussions with business organisations.

The two also discussed tracking of prices of important commodities such as onions and milk to prevent sharp increases, a Government official told Business Line.

The Commerce Ministry has already started talks with the Finance Ministry on doing away with Minimum Alternate Tax of 18. 5 per cent and Dividend Distribution Tax of 10 per cent, which were imposed on SEZ units in 2011-12 despite the SEZ Rules promising tax holidays for specified periods.

Since the Finance and Commerce Ministries have been on different pages on the issue of taxing SEZs, the Prime Minister’s idea of holding a meeting with Revenue Secretary Rajiv Takru and Commerce Secretary Rajeev Kher is to help the two sort out their differences face to face, the official said.

While the Commerce Ministry had resisted the taxation move since inception arguing that it would affect investor confidence, the Finance Ministry had said that the exemption was leading to revenue loss.

Investments in SEZs have gone down sharply as a result of the taxes and a large number of investors have opted out of their approved zones or reduced the sizes of the zones.

The Commerce Ministry is also in favour of extending all sops, including incentives under Focus Product and Focus Market schemes, which are available to exporters outside the SEZs to units in the zones as well.

The PMO also wants the Commerce Ministry to keep a close watch on prices of sensitive commodities such as onions, milk and pulses. While the Commerce Ministry has not yet taken any action to stop exports, especially of onions, Commerce Secretary Rajeev Kher had said on Thursday that monitoring was happening on a daily basis.

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Paying salary to spouse can lower your tax

(If you are running a business,…)

Nimesh Desai has hired two employees to run his sweet shop. However, without his wife assisting him in his business, he would have found it tough. His two children had also been chipping in whenever they can. But, last year, when Desai was asked by his tax consultant whether he pays salary to his wife and children, he was at a loss for words. "It had never crossed my mind. In fact, it was good to know that I was within my rights to pay my family members a salary that they actually deserved," he says. He was equally surprised when he was told that he would save a great deal on his tax outgo. "The tax benefit was an added advantage," adds Desai. And, this year, he is in a position to reap the rewards of 'hiring' his wife and children when he files his income tax return.

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Japan seeks tax relief for its firms in Modi govt's first Budget

The Japanese government has asked the Narendra Modi government to cut a $3 billion retrospective tax bill on Japanese companies operating in India, claiming it was “unreasonable” and “discriminatory”. It has said the tax claims, made in FY ‘14, could impact future Japanese investments in India.

Tokyo is hoping for relief in the BJP-led governent’s first Budget that Finance Minister Arun Jaitley will present in Parliament in the first week of July.

The tax demands include a $2 billion bill on Mitsubishi and about $600 million on Honda. “Some of the Indian subsidiaries of the Japanese companies such as Honda and Mitsubishi Corporation are facing unreasonably huge tax demands,” notes a document prepared by the Japanese government and sent to the Indian finance and commerce ministries.

“These (tax demands) have created a lot of irritation and affected the interest of Japanese companies to invest in India,” Tamaki Tsukada, minister, economic section at the Japanese Embassy, told The Indian Express.

The concerns were raised by Japanese Prime Minister Shinzo Abe at the summit meeting with then Prime Minister Manmohan Singh earlier this year. But despite a joint statement on creating “predictability and transparency in terms of business environment including tax administration”, the issue was left unresolved, said Tsukada.

While the tax demand on Honda under Section 40(a) (i) of the Income Tax act is large, the claim on Mitsubishi at $2 billion (as much as the demand on Vodafone) has been contested by the Japanese government. Tsukada explained that the retrospective tax bill stretches over almost a decade of Mitsubishi’s operations.

The tax department has “disallowed payments for goods purchased by the Indian subsidiaries (like Mitsubishi India) from their parent companies, alleging that obligation of withholding tax was not complied with”. The problem, said Tsukada, was that when these companies set up shop in India, the tax provisions did not exist, and so it was unfair to apply them now.

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The Japanese government has further alleged that the tax demands violate the India-Japan Tax Treaty. It is now hoping the tax claims will be rescinded since its companies are in the manufacturing sector, which India wants to expand through bilateral cooperation with many of these companies from Japan.

The claims “amount to a discrimination prohibited under Article 24(3) of the India Japan Tax Treaty to disallow payments for goods purchased by the Indian subsidiaries from a non-resident,” says the Japanese government’s note. It adds that “such a situation has a significantly adverse impact on their business in India”. The tax issue will also be flagged in the India Japan Chamber of Commerce memorandum to

be submitted to Jaitley this month. The Japanese ambassador to India, Takeshi Yagi, who has sought an appointment with Jaitley, is also expected to raise the issue.
Indian tax rules are being repeatedly challenged by multi-national companies of late. Japan joins the list of countries that have substantial tax disputes with India.
Speaking at the Idea Exchange interaction at The Indian Express recently, Law Minister Ravi Shankar Prasad said he was against the application of retrospective tax laws except in rare cases, though the government should retain the power to use it.
A former revenue secretary said the rise in demands stem from the acute pressure on the tax departments to meet the budget targets for reduction of revenue deficit set by the government in the past few years. “Unless the deficit numbers are rationalised, it is difficult to see how these tax demands can be withdrawn,” he said.

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Budget expectations for changes in tax rules

With the new government having come to power on a manifesto promising less government interference and better services to the public, the expectations from the public regarding tax changes in the forthcoming budget are running high. While many taxpayers are clamouring for an increase in the basic tax exemption to offset the impact of inflation, there are other far more vexatious provisions that the new government needs to reconsider. While most of these provisions pertain to businesses, such as domestic transfer pricing, taxation of premium received on issue of shares, retrospective amendments regarding indirect transfer of shares by foreign companies, and others, there are a few provisions that result in harassment of the common man.

One such provision relates to taxation of the difference between the stamp duty valuation and the actual purchase price of an immovable property, as the income of the purchaser. This provision effectively presumes that the purchaser has paid black money if there is a difference of more than Rs.50,000 between these two values and, therefore, taxes the difference. In other words, it presumes that all taxpayers who acquire property at a lower price are tax evaders. It does not factor in the fact that a sale may be a distress sale, or that an adverse location or defective title of the property has depressed the value, besides various other factors which may have affected the valuation of the property.

Taxpayers have to go through the harassment of an assessment, a valuation by the departmental valuation officer and invariably end up in a series of appeals, involving substantial cost and tension, before they are able to prove that the price at which the property was purchased was genuinely the fair market price, which was lower than the stamp duty valuation.

Through another provision, section 50C, the seller also goes through the same harassment to ensure that she, too, is not taxed on the same difference. If the intention of the law is not to harass taxpayers, these sections need a relook.

The second big area of litigation faced by many individual taxpayers relates to the exemption for reinvestment of long-term capital gains in a residential house. Often, taxpayers buy more than one flat, which are adjacent to each other, to claim the exemption, and to facilitate any subsequent transfer of assets among their children. In such cases, they invariably face litigation from tax authorities, who claim that the benefit is available only for one flat since the law refers to acquisition of a house, even though the taxpayer may be using both the flats in a combined manner as one house for the entire family. Since the purpose of this exemption is to encourage construction and purchase of residential housing, there is no need for any restriction on the number of residential houses that a person may reinvest in to claim the capital gains exemption. A clarification is required in the law for this purpose.

The third and most significant area of harassment that taxpayers face is in relation to getting credit for taxes deducted at source and getting their tax refunds in time. The government has introduced a computerized system for grant of tax credit, and issued instructions to assessing officers to carry out rectifications. Yet, taxpayers are made to run from pillar to post to try and get full credit for tax deducted at source from their income. This is one area where, besides the law, the systems and procedures, too, need a thorough relook.

Taxpayers are promised refunds within four months under a Citizen’s Charter, but refunds are still withheld till beyond the end of the financial year, eight months later. Even then, many refunds are adjusted against fictitious demands, which the tax authorities ostensibly do not find time to correct. The government should either reduce the scope of tax deduction at source—which it has significantly expanded in the past few years—if it is not able to give credit for all such taxes collected, or it should give full credit in time.

We clearly need a fairer tax system, and not one in which there is no accountability of tax authorities, while taxpayers are made to run around and penalized for minor defaults. Tax officials, too, should be penalized for harassing taxpayers, so as to discourage such behaviour.

One hopes that the new finance minister will not only look at the amendments to be made in the law in the forthcoming budget, which will help businesses unleash their potential, but also provide some relief to harried taxpayers in the form of an improved tax administration.

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Budget 2014: India Inc to seek stimulus extension, less tax tumult

India Inc, in its first pre-budget consultation meeting with the Narendra Modi government, would urge finance minister Arun Jaitley to rationalise tax rates on corporates coping with economic slowdown and raise thresholds for personal income tax payers in a bid to boost consumer sentiment dented by high inflation.

Jaitley is scheduled to meet representatives from 20 chambers of commerce and industry on Friday. ET spoke to top officials in three leading industry bodies, the Confederation of Indian Industry (CII), Ficci and Assocham to glean their key submissions to the new FM.

Terming an early implementation of the goods and service tax (GST) as a surefire means of reviving investor sentiment and putting the economy back on track, CII president Ajay Shriram said that "nothing can be better than a well-crafted GST" as a stimulus to the economy.

At the same time, CII is expected to push for an extension of the short-term stimulus package granted in the interim budget by previous finance minister P Chidambaram this February. The stimulus that involved reduction of excise duty on certain goods in the range of 2 per cent to 6 per cent till June 30, 2014, the industry would like to see continuing till March 2015.

Assocham president Rana Kapoor is expected to suggest that the government raise critical resources and aid fiscal consolidation by using a holding company to hold the Centre's stake in public sector banks and disinvesting the significant stakes in private firms like ITC, Larsen & Toubro and Axis Bank held by the government through the Specified Undertaking of the Unit Trust of India or SUUTI.

CII would also call for an aggressive approach to disinvestment, with a suggestion that the government stake in public sector banks be diluted to 51 per cent and subsidy expenditure be rationalised by at least 10 per cent to save about Rs 25,000 crore and improve India's fiscal deficit.

The industry chamber is also expected to reiterate its demand that investments over Rs 500 crore be considered by the Cabinet Committee on Investments set up by the previous government to expedite projects worth lakhs of crore that are held up for want of clearances.

The Manmohan Singh government had set a threshold ofRs 1,000 crore for an investment to be helped by the government and had rejected the demand to reduce the threshold first made in December 2013.

Ficci president Sidharth Birla is expected to tell Jaitley that the new government's first budget presents an opportunity to convince investors that India can offer a stable and consistent tax regime. Such an environment would need a significant shift from the current scenario where tax revenues are not keeping pace with targets and taxpayers are facing the wrath of aggressive revenue authorities looking to meet their targets.

CII is also likely to point out a major flaw in the stimulus package that the UPA had announced in February. "In the past, every time when the government changed the excise duty on vehicles, corresponding change had been made on the input rate to avoid mismatch. This had not been done in the stimulus package," said Shriram.

While excise duty on commercial vehicles has been reduced, excise on most of inputs used in manufacture of such vehicles continues to be at a basic rate of 12 per cent, resulting in an inverted excise structure.

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Budget 2014: Why Arun Jaitley Should Cut Income Tax

In the run-up to the elections, a part of the BJP leadership spearheaded by current Transport Minister Nitin Gadkari talked about a revolutionary income tax proposal that was touted as a gamer-changer by many in the party.

The proposal suggested abolishing income tax and replacing it with a bank transaction tax to boost the government's finances and ease tax burden on salaried individuals. That proposal met stiff resistance from senior BJP leaders like Arun Jaitley, who opposed the plan on grounds that the measure would have blurred the distinction between the rich and the poor. (Read the full story here)

Mr Jaitley is now the country's finance minister and in a month's time he would be delivering his first budget, which many hope would ease tax burden on the salaried class.

Here are the reasons why Mr Jaitley should rationalize income tax structure in India.

1) India's tax system is lopsided with an estimated 4 lakh people paying over 60 per cent of income tax collected in the country. Salaried Indians pay more income tax than high earners in US and China according to a survey. However, many millionaire farmers do not have to pay taxes as agricultural income is exempt from income tax. (Read the report here)

2) Many of the current tax provisions were formulated more than a decade ago and need to be upgraded. For example, the tax benefit on housing loan interest (for self-occupied property) has not changed since 2001 even though property prices have gone up by 2-3 times during the same period.

3) Persistent high inflation has ruined household budgets and impacted savings. Consumer price or retail inflation in India was at 8.59 per cent in April year-on-year after running near or above 10 per cent for almost two years through the end of 2013.

4) Tax laws in India continue to be complex and lead to many disputes. According to an Assocham survey of 3,000 assesses, the tax administration's sole aim remains maximization the collections from a small group of people. Tax policies and administration are opaque while the refund process is fraught with complications, the survey noted.

5) A cut in income tax will leave more disposable income in the hands of individuals. It will enhance the spending power and will help drive certain sections of the economy that are dependent on discretionary spend such as autos.

According to the Assocham survey, the government must consider the following five changes to rationalize taxes and provide relief to taxpayers in India, (Also read: KPMG's income tax expectations)

1) The government should increase income tax exemption limit (currently set at Rs. 2 lakh) to factor in high inflation. This will lead to more disposable income in the hands of tax payers.

2) The government should raise the savings rebate (under section 80C) beyond Rs. 1 lakh. The tax rebate schemes under Section 80C was introduced by the Finance Act 2005 and is considered to be grossly inadequate under the prevailing macroeconomic scenario. Raising this rebate will encourage domestic savings, which has come down from 25.2 per cent in 2009-10 to 21.9 per cent in 2012-13.

3) The limit of interest paid on home loans needs to be revised upwards from the current Rs. 1.5 lakh. This would not only lead to lower tax burden, but also provide impetus to labour intensive housing sector.

4) Medical and education cost of at least Rs. 1 lakh per annum should be made tax exempt. The minimum threshold limit should be determined based on the number of dependents for an individual.

5) The limit on premium paid on medical insurance under section 80D was fixed in 1998-99 and must be revised as they have not kept pace with the changed ground realities. Currently, individuals can claim Rs. 15,000 towards mediclaim payment, while for senior citizens the cap is Rs. 20,000.

Mr Jaitley would be constrained by the fact that income tax accounts for over 20 per cent of the government's total tax revenue and any meaningful reduction in taxes, without widening the tax base, could put pressure on the government's fragile finance.

Mr Jaitley has just over a month to make up his mind.

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Decision on tax rate hike under self-assessment-scheme at special meeting

Mayor Mahabala Marla is yet to affirmatively uphold the Congress' pre-election promise of not affecting property tax hike under self-assessment scheme.

With the opposition not in a mood to relent on the issue or let the Congress forget its pre-poll promise, Marla at the first general meeting of Mangalore City Corporation deferred a decision on the subject to a special meeting.

With leader of the opposition Premanand Shetty reminding Marla of his party's promise on SAS and wanting to know if the excess amount paid by citizens will be refunded or adjusted next year, Marla said, "I am yet to hear from the urban development ministry or the secretary concerned from whom a clarification has been sought."

Marla had written to the minister, secretary and election commission officials in this regard during LS polls.

Assuring the members that the writ of the council will prevail on the issue, Marla said he will convene a special meeting ahead of the next general meeting of the council where all issues related to the property tax under SAS will be discussed.

Sudheer Shetty Kannur of BJP widened the scope of the discussion on the subject by seeking details if the corporation has gone after tax defaulters.

Naveen D'Souza of the Congress wondered if the property tax returns filed under SAS are being actually verified on the ground or taken on its face value.

Marla observed that as a thumb rule it can be safely assumed that 75% of the property owners are honest and pay up while the rest don't.

Commissioner Ajit Kumar Hegde Shanady, who admitted that there is no system to verify the accuracy of property tax returns filed, however, said he has instructed the zonal commissioner, assistant revenue officers and revenue inspectors to prepare a ward wise compendium of such tax returns filed.

"Notices will be issued to defaulters through the media and steps will be taken to randomly check the returns filed and plus revenue leakages, if any," he added.

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Reviving Indian Economy – Arthakranti Proposal

Today India means sluggish Indian economy, poor people, black money, corruption, scams, lake of governance, terrorism, poor infrastructure, unemployment, deprived law and order and lot more.

In order to address all these issue and revive Indian economy people selected Narendra Modi as prime minister in recent lok sabha election. Majority of people believes that Modi will replicate Gujarat growth model in India and make India “Sone Ki Chidiya”(golden bird) again. Well time will reveal that how Modi government will operate and at what level he is getting success. Well today I am going to discuss about proposal made by Arthakranti Sansthan to revive Indian economy.

Mr.Arun Bokil , one of the key member of Arthakranti Sansthan was given time to share to PM Modi before recent election. He was given 9min for sharing but Mr Modi heard him for 2 hrs.

Arthakranti Proposal on Indian EconomyWhat is Arthakranti Proposal and who has given the proposal? It was the proposal to revive Indian Economy.

The ArthaKranti proposal is a well-researched scientific approach designed to completely transform the current Indian socio-economic scenario.

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Budget expectations for changes in tax rules

With the new government having come to power on a manifesto promising less government interference and better services to the public, the expectations from the public regarding tax changes in the forthcoming budget are running high. While many taxpayers are clamouring for an increase in the basic tax exemption to offset the impact of inflation, there are other far more vexatious provisions that the new government needs to reconsider. While most of these provisions pertain to businesses, such as domestic transfer pricing, taxation of premium received on issue of shares, retrospective amendments regarding indirect transfer of shares by foreign companies, and others, there are a few provisions that result in harassment of the common man. One such provision relates to taxation of the difference between the stamp duty valuation and the actual purchase price of an immovable property, as the income of the purchaser. This provision effectively presumes that the purchaser has paid black money if there is a difference of more than Rs.50,000 between these two values and, therefore, taxes the difference. In other words, it presumes that all taxpayers who acquire property at a lower price are tax evaders. It does not factor in the fact that a sale may be a distress sale, or that an adverse location or defective title of the property has depressed the value, besides various other factors which may have affected the valuation of the property. Taxpayers have to go through the harassment of an assessment, a valuation by the departmental valuation officer and invariably end up in a series of appeals, involving substantial cost and tension, before they are able to prove that the price at which the property was purchased was genuinely the fair market price, which was lower than the stamp duty valuation. Through another provision, section 50C, the seller also goes through the same harassment to ensure that she, too, is not taxed on the same difference. If the intention of the law is not to harass taxpayers, these sections need a relook.The second big area of litigation faced by many individual taxpayers relates to the exemption for reinvestment of long-term capital gains in a residential house. Often, taxpayers buy more than one flat, which are adjacent to each other, to claim the exemption, and to facilitate any subsequent transfer of assets among their children. In such cases, they invariably face litigation from tax authorities, who claim that the benefit is available only for one flat since the law refers to acquisition of a house, even though the taxpayer may be using both the flats in a combined manner as one house for the entire family. Since the purpose of this exemption is to encourage construction and purchase of residential housing, there is no need for any restriction on the number of residential houses that a person may reinvest in to claim the capital gains exemption. A clarification is required in the law for this purpose.The third and most significant area of harassment that taxpayers face is in relation to getting credit for taxes deducted at source and getting their tax refunds in time. The government has introduced a computerized system for grant of tax credit, and issued instructions to assessing officers to carry out rectifications. Yet, taxpayers are made to run from pillar to post to try and get full credit for tax deducted at source from their income. This is one area where, besides the law, the systems and procedures, too, need a thorough relook. Taxpayers are promised refunds within four months under a Citizen’s Charter, but refunds are still withheld till beyond the end of the financial year, eight months later. Even then, many refunds are adjusted against fictitious demands, which the tax authorities ostensibly do not find time to correct. The government should either reduce the scope of tax deduction at source—which it has significantly expanded in the past few years—if it is not able to give credit for all such taxes collected, or it should give full credit in time.We clearly need a fairer tax system, and not one in which there is no accountability of tax authorities, while taxpayers are made to run around and penalized for minor defaults. Tax officials, too, should be penalized for harassing taxpayers, so as to discourage such behaviour. One hopes that the new finance minister will not only look at the amendments to be made in the law in the forthcoming budget, which will help businesses unleash their potential, but also provide some relief to harried taxpayers in the form of an improved tax administration.Gautam Nayak is a chartered accountant.

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LTCG from house sale can’t be offset against commercial unit

I availed an education loan. Is the whole loan amount (principal plus interest) considered for tax deduction or only the interest part? Also, will the amount paid only this year (2014-15) be considered or the amount of previous year (2013-14) will also be considered? I had some due amount in 2013-14 which I paid in 2014-15. —Jeet S. Only the interest paid on an education loan availed for pursuing higher education qualifies for tax benefit. That means, out of the total equated monthly instalment (EMI), you can avail deduction only towards the interest portion. Accordingly, the principal repayment will not qualify for tax benefit.As the deduction of interest is allowed on payment basis, the actual interest paid during FY15 will qualify for tax deduction. Further, the deduction can be availed for eight fiscals starting from the fiscal in which you started paying interest. The tax deduction is allowed only if the education loan has been availed from any banking company or notified financial institution or any approved charitable institution. Further, higher education includes any course of study pursued after passing the senior secondary examination or its equivalent from any recognized school, board or university or any other authorized authority.I plan to sell a residential property that I had acquired in 2003. The proceeds of this sale are intended to be reinvested, but in a commercial property. Would this transaction be exempt of capital gain (assuming that the reinvestment is more than the capital gain) tax? —Mohit As you have held the residential property for more than 36 months from the date of acquisition, the gains resulting from sale of the residential property shall be termed as long-term capital gain (LTCG). The LTCG can be claimed as exempt from capital gains tax by reinvesting the LTCG in a new residential property within the specified time frames (i.e. within one year prior to sale date or two years from the sale date or within three years from the sale date for an under-construction property). Alternatively, the LTCG can be invested in specified bonds subject to fulfilment of other conditions under the domestic tax law. Since the LTCG has to be invested in a residential property or in specified bonds, if you propose to reinvest the LTCG in a commercial property (which has always meant to be a commercial premise and not a residential property used for commercial purposes), you cannot claim the aforesaid capital gain tax exemption. Accordingly, the entire LTCG shall be taxed at 20%. Additionally, if total taxable income during FY15 exceeds Rs.1 crore, surcharge at 10% on basic rate should be applied. Further, an education cess of 3% on basic as well as surcharge (if any) is applicable.

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Keep your retirement portfolio separate from others

I am 32 years old and want to save for retirement by investing in equity funds. What are the best possible options? —Abhijit With more than 20 years to go for your retirement, you are well positioned to build a significant corpus by investing systematically in an aggressive portfolio during your working years. There are a few things you need to remember about your investments. The first thing to note is the need to do a proper estimation of the amount you need to save and invest every month. This calculation should take into account factors such as monthly living expenses, inflation (both now and after retirement), and projected returns for pre- and post-retirement investments. For example, if your living expense is Rs.30,000 a month (after housing- and work-related expenses), assuming an inflation rate of 7%, annualized pre- and post-retirement returns of 12% and 8%, respectively, you would need to save and invest about Rs.19,000 per month for the next 26 years to generate a corpus of close to Rs.4 crore that you would need at the time of your retirement. Of course, you can always have a plan to start with a smaller amount and keep increasing it over the years.The second thing to note is that given the long term for which you will be investing, you should choose an appropriately aggressive asset allocation with maximum exposure to the equity markets (all segments: large, medium, and small companies) both in India and, to a lesser extent, overseas. Apart from this, you should also make sure that you are not perturbed by the volatility of the markets during the tenor of the investment. Over the long term of your investment, the ups and downs of the markets will even out and yield a healthy return. So, it is essential that you eschew the temptation to time the market or stop/restart your systematic investment plans based on your perception of where the market is at any given time.The last thing to remember is to not leave the portfolio totally unattended. First, you should keep your retirement portfolio segregated from the rest of your investments so that you can track it separately. Secondly, you should review the funds in the portfolio every year or two to ensure that they are performing well. Is it a good time to invest in fixed maturity plans (FMPs)? I am not much of a risk taker. —K. Srinivasan FMPs are closed-ended mutual funds that invest exclusively in the debt market. They are good in a scenario where the interest rates are either at or near peak values and are expected to go down in future. At this time, consensus opinion is that we are in such a situation and hence, yes, it is a good time to invest in FMPs.

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Nabard cuts long-term refinance rates

 The National Bank for Agriculture and Rural Development (Nabard) has reduced the interest rate on its long-term refinance facility to banks by 20 basis points to promote investments in agriculture.

The new rates will be 9.5 per cent (9.7 per cent earlier) for 5 years and above and 9.7 per cent (9.9 per cent earlier) for 3-5 years.

Banks availing themselves of more than Rs 500 crore in a single drawal will further be incentivised by 10 bps. The new rates are applicable from Friday, June 6, 2014. One basis point is equal to one-hundredth of a percentage point.

50 bps cut in rates

The financial institution further said that it will offer 50 basis points reduction in interest rate for innovative agricultural activities, which enhance production and productivity.

These activities, among others, include production under controlled conditions like poly houses with water saving drip and fertigation facilities, precision farming, etc. The list includes 12 such innovative farm practices.

Nabard will also extend the 50 basis points rebate for area development schemes. These incentives will give a boost to investment credit which will aid capital formation in agriculture.

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Withdraw amendments to Multi-State Co-op Act

The National Organising Committee of Sahakar Bharati (which is a body for promoting cooperatives in various fields) has sought the withdrawal of proposed amendments to Multi-State Cooperative Act.

Speaking to presspersons on the sidelines of the meeting of the committee here on Saturday, Satish Marathe, President of Sahakar Bharati, termed some of the amendments proposed in Multi-State Cooperative Societies Bill 2010 as obnoxious.

(Multi-state cooperatives are those that serve the interests of members in more than one state).

Stating that 19 amendments are proposed in the Bill, he said some of them will have major impact on the multi-state cooperatives. In fact, the Parliamentary Standing Committee on Agriculture, headed by Basudeb Acharia, had rejected some of the amendments, he said.

Marathe said that the two-day meeting of the committee will also urge the Central Government to scrap the imposition of income-tax on cooperatives. It was proposed by the UPA Government under the Direct Tax Code Bill.

Microfinance regulatory bill

Urging the Government to introduce the Microfinance Development and Regulatory Bill, he said microfinance institutions in the country have hardly been regulated, and some of them charge high interest rates.

Since there is a need to regulate such institutions, the Government should introduce a strong Bill in this regard, he said.

Stressing the need for setting up small local urban cooperative banks across the country, he said no urban cooperative bank has been set up in the country in the past 15 years.

The RBI should announce norms for setting up new urban cooperative banks, he said.

K. Padmanabha, Vice-President of Sahakar Bharati, and President of Central Arecanut and Cocoa Marketing and Processing Cooperative (Campco) Ltd, was present on the occasion.

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India Inc seeks MAT removal for SEZ developers, units

Corporate India has urged the Finance Minister Arun Jaitley to exempt special economic zones (SEZ) developers and units from the levy of minimum alternate tax (MAT).

After being unable to get their way in recent years for removal of this levy, India Inc is now once again making efforts to get this duty out of the income tax law in respect of SEZ developers and units.

A regime change at the Centre and new guard at the Finance Ministry has raised hopes among SEZ developers that the MAT levy would go in the upcoming budget.

“We have requested that MAT be totally removed for SEZ developers and units. For others, our suggestion is that the MAT rate should be scaled down to, say 10 per cent”, a senior industry representative who attended the pre-budget meeting with Jaitley on Friday said.

This industry demand is seen as a big ask on Jaitley who may not deliver a populist budget given the fiscal situation.

MAT HISTORY ON SEZs

The Government had in Budget 2011-12 imposed MAT of 18.5 per cent on SEZ developers and units.

This levy had come into effect on April 1, 2012 (from financial year 2011-12) amidst severe protest from SEZ developers and units.

The current MAT rate is 20.96 per cent and is applicable on book profits.

WHAT IS MAT?

Under the income tax law, if a company’s taxable income is less than a certain percentage of the booked profits, then by default that much of the book profits will be considered as taxable income and tax has to be paid on that.

Currently, the basis of levy of MAT is on ‘book profits’. However, the proposed direct taxes code wants to change the basis of levy to ‘gross assets’ instead of ‘book profits’.

INDUSTRY DEMANDS

The upcoming budget should allow the aggregate of book loss and unabsorbed depreciation to be reduced while computing book profits, some industry associations have suggested.

They also want the weighted deduction available for research and development expenditure to be counted for computing book profit for MAT purposes.

Also, the long-term capital gain in respect of equity shares in a company or units of equity oriented funds on which securities transaction tax (STT) has been paid should not be part of book profit for the levy of MAT, industry has suggested.

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Social sector groups seek tax concession for NGOs

Representatives of social sector today sought higher budgetary allocation for 2.68 crore disabled people and tax concessions for NGO from Finance Minister Arun Jaitley.

Jatiley, at a pre-budget consultation, asked the social sector related groups to help the government in taking positive advantage of demographic dividend.

"We may have been implementing the various social sector programmes but there is need to upgrade them and their delivery mechanisms and also provide adequate interventions within the fiscal space available" the Finance Minister said in the meeting.

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New finance minister to face Budget rush

The new finance minister would have to get on the Budget exercise for 2014-15 right after he takes charge on Tuesday, as the plan is to present it in Parliament by June-end or the first fortnight of July.

Officials said the initial process had begun and the minister would be presented with facts and figures. Beside, the idea is to have pre-Budget consultations with stakeholders from the first week of the minister taking over, though "a final call will be taken by the new minister", an official said.

The minister customarily meets industry chambers, industrialists, economists, agriculturalists, trade unions and so on for pre-Budget interactions. Then finance minister Pranab Mukherjee had started a practice of interactions with state finance ministers in 2009-10. The practice might be continued, since next Prime Minister Narendra Modi was heading the Gujarat government till a few days back.

BUDGET ON MIND
Officials in the finance ministry plan to have pre-Budget interactions between new FM and various stakeholders from towards end of this month
Consultations may start with chambers and associations
Officials to present new FM with updated data on revenue and expenditure
Budget may be presented in the Lok Sabha by end-June or first fortnight of July

Asked what would be his advice to the government if invited, Devendra Pant, head, public finance, at India Ratings & Research, said: "The biggest challenge is inflation. Continuing with fiscal reform such as subsidy control and targeting it is a must."

The now-ruling Bharatiya Janata Party's election manifesto had talked about ending "tax terror". Pant said the moment you simplify tax laws, "tax terror" would also come down. In this respect, the long-proposed Direct Taxes Code (DTC) could play an important role, though the Budget might give only an outline, he added.

Officials in the ministry are going through inputs from business chambers to the new government. "We might start the interactions with chambers and (like) associations," another official said.

While the chambers are yet to give their pre-Budget memoranda to the government, their broad inputs are already in the public domain. The Confederation of Indian Industry, for instance, had said the focus should be on promoting investments, reviving manufacturing, fiscal consolidation, etc. Assocham president Rana Kapoor had said the immediate task was to send a strong message that the tax regime would be clear and non-discretionary to different interpretations and under no circumstances should be retrospective.

Officials said a lot of updated data on the fiscal deficit, gross domestic product, tax collections and actual expenditure had come since presentation of the interim Budget in February. So, new targets would be set.

India's gross domestic product (GDP) growth fell further to 4.7 per cent in the third quarter of 2013-14 against 4.8 per cent in the second. However, it was higher than the 4.4 per cent in the first quarter. The data came after presentation of the interim Budget.

Besides, the fiscal deficit rose 14 per cent higher till February 2013-14 over the revised estimates for the entire year. However, officials are hopeful they'd have contained it at 4.5 per cent of GDP in 2013-14, lower than the 4.6 per cent given in the revised estimates, since March would generate a surplus. Much would also depend on the GDP data for entire 2013-14 that will come out on Friday. Advance estimates pegged GDP growth at 4.9 per cent for 2012-13, while indications are that it would be lower than that. If that happens in nominal GDP as well, any given value of the fiscal deficit will magnify it as a percentage of GDP. The interim budget pegged the fiscal deficit at 4.1 per cent of GDP for 2014-15.

Tax figures for April have also come in. While direct tax collections, net of refunds, were 21.5 per cent lower at Rs 9,590 crore in April, year-on-year, indirect tax collections showed only 3.5 per cent growth.

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FDI, Budget, jobs key agenda for FM

Enhancing the foreign direct investment cap in the defence sector may be one of the immediate steps taken by the new finance minister, who is set to join office later this week.

The department of industrial policy and promotion is, in fact, understood to be working on a Cabinet note to this end, hoping that the new government will approve the long-pending move.

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Former defence minister AK Antony had refused any move to increase the FDI cap in the sector to 49 per cent from the current limit of 26 per cent. “We will take up the proposal as it will not only help our defence production but also bring down imports and keep the current account deficit in check,” said a finance ministry official. A bigger problem facing the sector is a ban on foreign institutional investors (FIIs), which was an unexpected consequence of changes in the FDI policy announced last year. The plan could get a boost given that Cabinet minister Arun Jaitley may hold the finance ministry portfolio along with additional charge of the key defence ministry.

“It is likely to be a temporary charge but the minister will have to balance his dual role, given that a large proportion of the non-plan spend is allocated to the defence ministry,” agreed Dhirendra Swarup, former finance secretary pointing out that it is an unusual move as the finance minister is usually not burdened with another critical ministry. Though former finance minister Pranab Mukherjee had held dual charge of external affairs and finance in 2009, officials point out that a more likely synergy could be between the ministries of finance and corporate affairs that were clubbed together in the previous NDA government as well.

“Corporate affairs was at one point also part of the ministry of law but it is more related to the area of finance and combining these would be a wise decision,” said a former officer with the ministry.

Though an official announcement is awaited, such a merger would be in tandem with Prime Minister Narendra Modi’s decision to revamp government functioning by merging related ministries.

Also the lack of clarity on the structure of the Planning Commission could pose an additional challenge for the new finance minister who would be faced with the preparation of a Rs 17 lakh crore Budget in just about a month’s time. The Planning Commission acts as an adviser to the finance ministry in finalising plan schemes and expenditure.
“The finance minister’s main priority will be the passing of the Union Budget, which is likely to be done by July,” said KM Chandrasekhar, former Cabinet secretary at the Union who previously headed the revenue department.

But on the flip side, Budget preparations could be aided by the smaller size of the Cabinet, which could mean less deliberations and lobbying by ministries for allocations and schemes.

“No matter the size of the Cabinet, the finance minister has a special status and a standalone position,” said Chandrasekhar. Merger of ministries would also create synergies across sectors such as finance, industry, small and

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Seven things that market expects from Budget in July

The event of the new government formation is over and the market, which had already run up in anticipation, is taking a breather. The next big trigger for the market will be the Union Budget, to be presented in Parliament in the month of July.

Investors are now looking for signals like what the Budget entails, what the government does on the projects and the policies front.

"The first budget will be the big policy tool that will be the indicator of what the government intends to do and there will be some short term and long-term item measures," said Pradip P Shah, Chairman, IndAsia Fund Advisors, in an in interview with ET Now.

The NDA government, as it promised in its manifesto, is expected to focus on growth to give a boost to the weak economy even as the fiscal consolidation remains top priority.

Following are the factors that the market is hoping from the new government:

Forward Contracts/CTT: Traders from commodity derivatives market are expecting the government to announce steps to restructure the Forward Contracts Regulation Act (FCRA). They are also expecting the government to do away with the commodities transaction tax (CTT) which was levied last year on metals, bullion and a few processed agri commodities.

Rajiv Gandhi Equity Savings Scheme: Marketmen are hoping the new government to announce measures like tax breaks on stock market investments to attract new investors. The introduction of the Rajiv Gandhi Equity Savings Scheme by the previous government did little to bring in first-time investors in a tough economic environment.

Fiscal consolidation: The market is expecting the new government to present a fiscally-responsible Budget. The UPA government had laid a financial consolidation road map to lower the fiscal deficit to 4.8 per cent of GDP in 2013-14, 4.2 per cent in 2014-15 and 3.6 per cent in 2015-16.

"We expect the new government to remain on the fiscal consolidation path, though a marginal upward revision of the FY15 fiscal deficit target cannot be ruled out. The outgoing government targeted a FY15 deficit of 4.1% of GDP. We do not expect a significant upward revision given the strong fiscal discipline seen under the previous NDA government and in Gujarat under Modi's leadership," said a Standard Chartered report.

The government will have to focus on clearing stalled projects and announcing new ones to boost growth, but high fiscal deficit will give it less room to go for an over-drive.

Roadmap for GST: Investors are expecting the new government to announce its roadmap for implementation of the Goods & Services Tax (GST).

There has been a demand to shift from complex tax structure to a simpler GST, considered as a game-changer. The GST is expected to broaden tax collection and spark spending, adding as much as 2 percentage points of growth to Asia's third-largest economy.

Credit Suisse predicted that GST would be the first 'high impact' legislation taken up by the new parliament.

However, the government may find it difficult at the moment to pass GST as it also requires support from the state governments.

The BJP manifesto promises to work with the state governments to usher in the GST in an appropriate timeframe. For implementing the same, it plans to put a robust IT network system will in place.

Lower subsidies: The BJP has been vocal of reviving growth by job creations and lowering subsidies. The BJP manifesto said it will seek greater fiscal discipline without compromising on the availability of funds for development.

As major component of subsidies is from the oil & gas sector. The government may look at completely de-regulating diesel prices unlike a hike of 50 paise per litre per month in the UPA government. It may also re-look at a cap on LPG cylinders for home use.

The government may rationalise the spending on social welfare programmes.

"We think the approach may be to temper down spending, especially less productive spending areas like NREGA which will likely be integrated with asset creation programmes," said a UBS report.

Removal of Securities Transaction Tax (STT): Traders in market will be a happy lot if the new government lowers or removes the STT in its next Budget.

STT is levied on the sale and purchase of equities in the capital markets. The previous government had fixed its collection from STT to Rs 5,992 crore in 2014-15.

A majority of the market participants have been demanding removal or lowering of this tax. In its manifesto, the BJP promises to provide a non adversarial and conducive tax environment and rationalize and simplify the tax regime.

In a populist measure to thank its vote bank, the government may lower STT.

Gold duty cut: The previous government had banned gold imports to arrest the widening current account deficit. The situation has changed since then and the huge inflows in the Indian markets and ban on gold imports have helped to bring down CAD considerably.

India's Q1 2014 current account deficit improved to 0.2 per cent of GDP, from 0.9 per cent of GDP in the previous quarter. The improvement was driven by a continued reduction in the trade deficit due to a relatively larger decline in imports compared to exports.

"We expect the current account deficit to rise gradually to 2.6% of GDP in FY15, due to a gradual increase in imports driven by a recovery in domestic demand as well as some relaxation in gold imports by the new government," said a Goldman Sachs report.

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Commercial tax wing bats for study on tax structure and subsidy

The Commercial Tax Department (CTD) of the Odisha government has pitched for comprehensive study on tax structure and providing subsidies to small industries in the current financial year.

In a proposal to the Finance Department, the CTD said, the task of analysing tax structures should be carried out by the International Finance Corporation (IFC), which is already engaged by the department to chalk out other reform measures.

"For the year 2014-2015, IFC should focus on the aspects related to tax rates, both within the state and vis-à-vis neighbouring states and (should) study the processes/procedures for providing incentives/subsidies etc to SMEs in the industrial policy," said Manoj Ahuja, commercial tax commissioner in a proposal to state Finance Department last week.

The study of tax structures should make an effort to identity sectors whose competitiveness was affected solely on grounds of tax distortions. Similarly, the incentives and subsidies to be proposed by the study for small industries should also ensure that the expedition of these process are timely and hassle free as 'not being able to avail the incentives is also a cost to the enterprises', Ahuja added.

The IFC is already studying the cost of compliance of tax reforms for the CTD. The study conducted for 2013-14 found out that the compliance cost for tax collection in Odisha is Rs 9,014, compared with Rs 15,530 in Bihar and Rs 25,178 in Rajasthan.

The tax department said, a host of reform measures initiated by it has resulted in lower compliance cost.

To prevent tax evasion and fraudulent activities, the department has formed an Economic Intelligence Unit (EIU) and also centralised computer based e-scrutiny and risk profiling of dealers. It also undertook several other steps such as e-refund, e-NDC, e-VC and e-TDS. Other IT-based steps have also been taken to increase administrative accountability and efficiency.

Besides, the CTD has proposed several changes in the statute to improve tax administration and the environment for business.

As the cost of tax compliance has come down, the department said, IFC must be engaged in undertaking other studies to help out the department in making new policy initiatives.

"With the further reforms being undertaken by CTD, the cost of compliance would further come down and supports or study by IFC of processes is not required as it will not result in any further significant reduction in compliance costs. There is a need to define the study for IFC to make it more objective and result oriented," the tax commissioner said.

In its study report regarding system of tax collection in Odisha, the IFC has proposed that an across the board set of recommendations be made on reforming the VAT (value added tax) structure. The agency also said there is room for reform in providing VAT clearance certificate.

The commercial tax department said the it is working upon the recommendations made by the IFC.

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