Retrospective tax settlement scheme to start from June 1

 The government will open from June 1 its one-time offer to settle retrospective tax disputes, involving firms like Vodafone and Cairn Energy, after rules are framed for these to pay principal tax and get waiver from interest and penalty. The rules framed for implementation of the scheme shall be notified in the Official Gazette shortly and shall include a form, as well as particulars and declarations to be made, government sources said. The scheme, they said, would not be an open-ended scheme. Its closure date will be decided by the revenue department later. The details will be issued once the Finance Bill, 2016, is approved by Parliament in the second leg of the Budget session beginning April 25. Sources said companies would have to provide proof of withdrawal of “any proceeding for arbitration, conciliation or mediation or any notice thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India whether for protection of investment or otherwise”. The company would also have to furnish an undertaking, waiving its right to seek or pursue any remedy or any claim in relation to the specified tax which may otherwise be available to it under any law or under an agreement with any country. The company, availing of the offer, would have to pay the principal tax amount within 30 days of the designated authority, determining the amount payable by the declarant. Also, any amount paid in pursuance of a declaration shall not be refundable under any circumstances. The rules once framed would be placed before both Houses of Parliament for any modification the law makers may want to make. Announcing the one-time scheme of Dispute Resolution for companies facing a tax demand after retrospective amendment to Income Tax Act, Finance Minister Arun Jaitley had in his Budget speech said: “They can settle the case by paying only the tax arrears, in which case, liability of the interest and penalty shall be waived.” While Vodafone faces a total of Rs 14,200 crore in tax, interest and penalty over its $11-billion acquisition of Hutchison Whampoa’s India telecom business in 2007, Cairn Energy has been asked to pay a total of Rs 29,000 crore as tax on alleged capital gains made on a 2006 internal business reorganisation. Both the firms have challenged the tax demands and have initiated international arbitration. Sources said the government was of the view that the arbitrations are not just time consuming but were also costing the government a lot besides getting India a bad name. The settlement scheme was proposed to put an end to all of it.

(Business Standard)

How to make best out of small savings rate cuts

 The government has notified lower interest rates for the small savings schemes. Senior citizens, who depend on interest income, will be affected the most by this rate reduction. Experts warn of more pain for small savings investors as the government is going to align interest rates on small savings products on a quarterly basis now. For example, the new rates are applicable only for April-June quarter of 2016. "The government has not changed the interest setting formula. Only change this time is notifying rates for a quarter instead of the full financial year," says Manoj Nagpal, CEO, Outlook Asia Capital. For example, PPF will continue to earn 25 bps more than the average 10-year yield on government securities. Why did the government go for quarterly changes now? "High small savings rate was the stumbling block why banks were not able to cut deposit and lending rates," says R Sivakumar, head -fixed income at Axis Mutual Fund. Experts believe that the transmission will be more in the coming months. "We expect the 10-year yield falls to around 7% by December because RBI may cut 50 to 75 bps before December," said Sivakumar. And since small savings rates are linked to market rates now, it is also expected to come down further in the coming quarters. Though this is good news for equity and long dated bond investors, it is bad news for small savings investors. So they need to align their strategies accordingly. As a first step, they need to segregate the small schemes where the interest rates are fixed for the entire tenure. "In schemes How to make best out of small savings rate cuts The government has notified lower interest rates for the small savings schemes. Senior citizens, who depend on interest income, will be affected the most by this rate reduction. Experts warn of more pain for small savings investors as the government is going to align interest rates on small savings products on a quarterly basis now. For example, the new rates are applicable only for April-June quarter of 2016. "The government has not changed the interest setting formula. Only change this time is notifying rates for a quarter instead of the full financial year," says Manoj Nagpal, CEO, Outlook Asia Capital. For example, PPF will continue to earn 25 bps more than the average 10-year yield on government securities. Why did the government go for quarterly changes now? "High small savings rate was the stumbling block why banks were not able to cut deposit and lending rates," says R Sivakumar, head -fixed income at Axis Mutual Fund. Experts believe that the transmission will be more in the coming months. "We expect the 10-year yield falls to around 7% by December because RBI may cut 50 to 75 bps before December," said Sivakumar. And since small savings rates are linked to market rates now, it is also expected to come down further in the coming quarters. Though this is good news for equity and long dated bond investors, it is bad news for small savings investors. So they need to align their strategies accordingly. As a first step, they need to segregate the small schemes where the interest rates are fixed for the entire tenure. "In schemes How to make best out of small savings rate cuts The government has notified lower interest rates for the small savings schemes. Senior citizens, who depend on interest income, will be affected the most by this rate reduction. Experts warn of more pain for small savings investors as the government is going to align interest rates on small savings products on a quarterly basis now. For example, the new rates are applicable only for April-June quarter of 2016. "The government has not changed the interest setting formula. Only change this time is notifying rates for a quarter instead of the full financial year," says Manoj Nagpal, CEO, Outlook Asia Capital. For example, PPF will continue to earn 25 bps more than the average 10-year yield on government securities. Why did the government go for quarterly changes now? "High small savings rate was the stumbling block why banks were not able to cut deposit and lending rates," says R Sivakumar, head -fixed income at Axis Mutual Fund. Experts believe that the transmission will be more in the coming months. "We expect the 10-year yield falls to around 7% by December because RBI may cut 50 to 75 bps before December," said Sivakumar. And since small savings rates are linked to market rates now, it is also expected to come down further in the coming quarters. Though this is good news for equity and long dated bond investors, it is bad news for small savings investors. So they need to align their strategies accordingly. As a first step, they need to segregate the small schemes where the interest rates are fixed for the entire tenure. "In schemes like senior citizen savings scheme, NSC, KVP, etc, the new rates are applicable only for new customers. So Investors should rush and invest before March 31," says Amol Joshi, founder, PlanRupee Investment Services. However, there is no need to rush in to other products like PPF, where the lowered rates will be applicable for the entire accumulated corpus and not just for the new investments. PPF rate now is already at all-time low and is expected to go down further if the government continues with the same formula in the coming quarters. For example, if the 10-year yield falls to 7% by end of December, the PPF rates for January-March quarter of 2017 will only be 7.25%. However, there is no need for investors to avoid PPF altogether. "In addition to the government backing and tax benefits, PPF continues to offer reasonable spread above benchmark rates. So it will remain attractive despite the quarterly rate resets," says Manoj Nagpal, CEO, Outlook Asia Capital. And even if the PPF rate falls to 7.25%, it still will be higher than the prevailing inflation rates (CPI inflation was at 5.18%). The small savings investors also need to look outside now. There will be a lot of fixed maturity plan (FMP) launches before March 31 that investors can consider. "Investing into three-year plus FMPs (ie 1,110 days) is a good option now, as the four-year indexation makes it tax efficient," says Amol Joshi of Plan Rupee Investment Services. Four-year indexation will be available because these products will be stretching into five financial years. Listed tax savings bond, where the yield is around 7.5%, is another good option the investors in high tax brackets can consider.

(Economic Times)

ECS will be replaced with NACH from 01/04/2016.

Kindly ensure that all ECS payment to be made through till 31/03/2016.

NACH stands for National Automated Clearing House.

National Payments Corporation of India (NPCI) has implemented “National Automated Clearing House (NACH)” for Banks, Financial Institutions, Corporates and Government a web based solution to facilitate interbank, high volume, electronic transactions which are repetitive and periodic in nature. NACH System can be used for making bulk transactions towards distribution of subsidies, dividends, interest, salary, pension etc. and also for bulk transactions towards collection of payments pertaining to telephone, electricity, water, loans, investments in mutual funds, insurance premium etc.

National Automated Clearing House (NACH) is a centralised system, launched with an aim to consolidate multiple ECS systems running across the country and provides a framework for the harmonization of standard & practices and removes local barriers/inhibitors. NACH system will provide a national footprint and is expected to cover the entire core banking enabled bank branches spread across the geography of the country irrespective of the location of the bank branch.

With the implementation of NACH system, NPCI intends to provide a single set of rules (operating and business), open standards and best industry practices for electronic transactions which are common across all the Participants, Service Providers and Users etc. NACH system also supports Financial Inclusion measures initiated by Government, Government Agencies and Banks by providing support to Aadhaar based transactions.

The NACH system facilitates the member banks to design their own products and also addresses specific needs of the banks & corporates including a refined Mandate Management System (MMS) and an online Dispute Management System (DMS) coupled with strong information exchange and customised MIS capabilities.

The NACH system provides a robust, secure and scalable platform to the participants with both transaction and file based transaction processing capabilities. It has best in class security features, cost efficiency & payment performance (STP) coupled with multi-level data validation facility accessible to all participants across the country.

NACH’s Aadhaar Payment Bridge (APB) System, developed by NPCI has been helping the Government and Government Agencies in making the Direct Benefit Transfer scheme a success. APB System has been successfully channelizing the Government subsidies and benefits to the intended beneficiaries using the Aadhaar numbers. The APB System links the Government Departments and their sponsor banks on one side and beneficiary banks and beneficiary on the other hand.

Amendments in Form ST-3 (After Swachh Bharat Cess)

In order to make service tax return compatible to entertain Swachh Bharat Cess as levied under section 119(2) of Finance Act, 2015 which was made applicable w.e.f 15th November 2015. Now, Central Goverment vide Notification 20/2016-ST dated 8-March-2016, have made certain necessary amendments in Form ST-3 (Service Tax Return) wherein following changes have been undertaken:

(i)            In Part B:

(a)  in the Table "B1 FOR SERVICE PROVIDER", after serial number B1.21 and the entries relating thereto, the following serial numbers and entries shall be inserted, namely:—

"B1.22	Swachh Bharat Cess payable based on entries in serial number B1.15
B1.23	Swachh Bharat Cess payable based on entries in serial number B1.16
B1.24	Total Swachh Bharat Cess payable B1.24 = B1.22+B1.23"

(b)  in the Table "B2 FOR SERVICE RECEIVER", after serial number B2.21 and the entries relating thereto, the following serial numbers and entries shall be inserted, namely:—

	"B2.22	Swachh Bharat Cess payable based on entries in serial number B2.15
	B2.23	Swachh Bharat Cess payable based on entries in serial number B2.16
	B2.24	Total Swachh Bharat Cess payable B2.24 = B2.22 +B2.23"

(ii)     in Part C, in the Table, after serial number C1 and the entries relating thereto, the following serial number and entries shall be inserted, namely:—

"C 1.1

Swachh Bharat Cess deposited in advance

(iii)       after Part D, after the Table "SERVICE TAX PAID IN CASH AND THROUGH CENVAT CREDIT", the following shall be inserted, namely:—

"PART DA- SWACHH BHARAT CESS (SBC) PAID IN CASH AND THROUGH ADJUSTMENTS

	DA1	Swachh Bharat Cess paid in cash
	DA2	By adjustment of amount paid as SBC in advance under rule 6(1 A) of the Service Tax Rules, 1994
	DA3	By adjustment of excess amount paid earlier as SBC and adjusted, by taking credit of such excess SBC paid, in this period under rule 6(3) of the Service Tax Rules, 1994
	DA4	By adjustment of excess amount paid earlier as SBC and adjusted in this period under rule 6(4A) of the Service Tax Rules, 1994
	DA5	By book adjustment in the case of specified Government Departments
	DA6	Total Swachh Bharat Cess paid DA6=DA1 +DA2+DA3+D A4+D A5

(iv)      in Part G, in the Table "ARREARS, INTEREST, PENALTY, ANY OTHER AMOUNT ETC PAID", after serial number G12 and the entries relating thereto, the following serial numbers and entries shall be inserted, namely:—

	"G13	Arrears of Swachh Bharat Cess paid in cash
	G14	Interest on SBC paid in cash
	G15	Penalty on SBC paid in cash
	G16	Total payment of arrears, interest, penalty on Swachh Bharat Cess G16=G13+G14+G15"

(v)          in PART H,-

(a)	for Table heading "H1 DETAILS OF CHALLAN (vide which service tax, education cess, secondary and higher education cess and other amounts have been paid in cash)", the following shall be substituted, namely:—
	"H1 DETAILS OF CHALLAN (vide which Service Tax,Swachh Bharat Cess, Education Cess, Secondary and Higher Education Cess and other amounts have been paid in cash)";
(b)	for Table Heading "H2 Source document details for payments made in advance/adjustment, for entries made at column D3, D4, D5, D6, D7; E3, E4, E5, E6, E7; F3,F4 F5,F6, F7; & G1 to G11", the following shall be substituted, namely:—
	"H2 Source document details for payments made in advance/adjustment, for entries made at column D3, D4, D5, D6, D7; DA1, DA2, DA3, DA4, DA5 ; E3, E4, E5, E6, E7; F3,F4, F5, F6, F7; and G1 to G11 and G13 to G15."

CAG finds 96 per cent of Rs.7 lakh crore of tax arrears ‘difficult to recover"

 The issue of arrears remaining uncollected plagued Service Tax as well Over 96 per cent of the Rs 7 lakh crore of outstanding direct tax dues are “difficult to recover”, according to a Comptroller and Auditor General (CAG) report tabled in Parliament on Friday. A separate report by the CAG strongly reprimanded the service tax collection department for not maintaining accurate and updated records. While pending total direct taxes rose from Rs 2.91 lakh crore in 2010-11 to Rs 7 lakh crore by the end of financial year 2014-15, the amount that is deemed difficult to recover out of this, rose from Rs 2.71 lakh crore (93 per cent) to Rs 6.73 lakh crore (96 per cent) in the same period. “Pending demands at the end of the year increased more than 2.4 times between FY 2010-11 and FY 2014-15. Out of total pending demand, the Income Tax Department indicated that more than 96 per cent is difficult to recover in FY 2014-15,” the CAG report on direct taxes said. The reasons behind the dues being difficult to recover include inadequate assets for recovery, cases under liquidation, assessee not being traceable and the demand for taxes having been stayed by various authorities, according to the report. “The recovery mechanism is deficient as certified demand remaining uncollected increased to Rs 2.4 lakh crore in FY 2014-15 from Rs 2.2 lakh crore in FY 2013-14,” the report added. A separate report tabled in Parliament by the CAG on service taxes castigated the Finance Ministry and in particular the Central Board of Excise and Customs (CBEC) for failing to ensure a high standard of data to do with service tax. “The Ministry could not provide data related to detailed scrutiny of returns and disposal of refund cases for FY15 as the format of data and responsibility to maintain the data were revised from November 2014. This indicates that continuity of maintenance of critical data is not ensured during change management in the CBEC,” the service tax report said. The report also found that, while the CBEC had provided data on various performance parameters such as scrutiny of returns, refunds, arrears realisation, internal audit, etc, the figures provided did not match the information furnished during the last audit report of 2015. “There is an urgent need to improve the quality of data maintenance in respect of service tax,” the report added. Apart from this, the report also found that the issue of arrears remaining uncollected plagued Service Tax as well. “It is a matter of concern that the collection as ratio of arrears during FY15 has fallen drastically to 1.17 per cent compared to 10.46 per cent in FY14. Although the falling ratio of collection of arrears has been repeatedly pointed out in the audit process, there is no sign of improvement. There is a need to strengthen the recovery mechanism of the department,” the report said. A third CAG report, on excise duty, found that the revenue foregone due to the various exemptions given on excise duty—which is the amount the government would have collected if there were no exemptions—fell below the actual central excise duty collections for the first time in five years. “It is observed that the revenue foregone for FY15 in respect of excise duties was Rs 1,84,764 crore… which is 97.74 per cent of revenue from central excise,” the report said. The comparable figure in FY11 was 139 per cent.

(The Hindu)

Uncollected tax demand increased to Rs 7 lakh cr in FY15

 The official auditor, the report found that direct taxes increased by 9% in 2014-15 (Rs 57,196 crore) compared to 2013-14 The Comptroller and Auditor General of India (CAG) on Friday said amount towards uncollected tax demand increased to Rs 7 lakh crore at March 2015 end from Rs 5.75 lakh crore in the previous year. "The uncollected demand is rising despite clear provisions in the (Income Tax) Act to enforce collection and recovery of outstanding demand viz. attachment and sale of assessess' movable and immovable property, appointment of a receiver for the management of assesses' properties and imprisonment," said the CAG report. The Compliance Audit Report of the Comptroller and Auditor General of India (CAG) tabled in Parliament said the tax demand has indicated that more than 96 per cent of uncollected demand is "difficult to recover" in 2014-15. The main reasons that demands have remained uncollected include inadequate assets for recovery, assessee not traceable, cases under liquidation and demand stayed by various authorities. The report further said voluntarily compliance of corporate and non-corporate assessees during 2014-15 was 83.2 per cent, down from 84.6 per cent in 2013-14. The official auditor, the report found that direct taxes increased by 9 per cent in 2014-15 (Rs 57,196 crore) compared to 2013-14. However, share of direct taxes in gross tax revenue decreased slightly to 55.9 per cent in 2014-15 from 56.1 per cent in the previous financial year. During 2010-11 to 2014-15 period, the compounded annual growth rate of corporate tax and income tax was 9.5 per cent and 16.7 per cent, respectively. It further said the Commissioner of Income Tax (Appeal) disposed of only 0.07 million appeals (24.2 per cent) in 2014-15 out of 0.31 million appeals due for disposal and appeals pending increased from 0.23 million in 2013-14 to 0.23 million in 2014-15. The CAG said Central Board of Direct Taxes did not evolve any mechanism/system for monitoring of high value cases which were pending for a considerable time and were required to be written-off.
(Business Standard)

Income tax department has started sending notices to non-filers for the assessment year 2013-14 & onwards & are also using the said information to verify under-reporting of income

1. Annual Information Return(AIR)

AIR-001: Cash deposits aggregating to Rs. 10,00,000/- or more in a year in any savings account

AIR-002: Paid Rs. 2,00,000/- or more against credit card bills

AIR-003: Investment of Rs. 2,00,000 or more in Mutual Fund

AIR-004: Investment of Rs. 5,00,000/- or more in Bonds or Debenture

AIR-005: Investment of Rs. 1,00,000/- or more for acquiring shares

AIR-006: Purchase of Immovable Property valued at Rs. 30,00,000/- or more.

AIR-007: Investment in RBI Bond of Rs. 5,00,000/- or more

2. Central Information Branch (CIB)
CIB- 94: Sale of Motor Vehicle

CIB-151: Transfer of immovable property

CIB-154: Transfer of capital assets where value declared for the purpose of stamp duty is more than sale value

CIB-157: Purchase of Immovable property valued at Rs. 5 lakhs or more

CIB-183: Time deposit of Rs 1,00,000/-

CIB-185: Purchase of Bank Draft of more than Rs. 50,000/- in cash

CIB 321: Share Transactions more than Rs. 20,000/-

CIB-403: Investment in Fixed Deposit/Time Deposit exceeding Rs. 2,00,000/-

CIB-406: Payment made against Credit Card more than Rs 2,00,000/-

CIB-410: Cash deposit aggregating of Rs 200000 on a day

CIB-502: Contract of Rs. 10,00,000/-or more in the Commodities Exchange

CIB-514: Interest paid by co operative credit Society

CIB: Payment in connection with foreign travel amount exceeding Rs. 1,00,000/- at one time

CIB: Payment to Hotel and Restaurants exceeding Rs. 1,00,000/- at one time

3. TDS return
TDS-94A: TDS Return – Interest other than interest on security (section 194A)
TDS-92B: TDS Return – Salary to Employees (section 192)

4. Service Tax ReturnEXC-002: Turnover from services reported in Service Tax Return

5. Stock Broker
STT-01: Purchase of equity share in a recognised stock exchange

STT-02: Sale of equity Share (settled by actual delivery or transfer) in a recognised stock exchange

STT-03: Sale of equity Share (settled by otherwise than by the actual delivery or transfer) in a recognised stock exchange

STT-04: Sale of option in securities (derivative) in a recognised stock exchange

STT-05: Sale of Futures (derivative) in a recognised stock exchange

Budget 2016: FM Arun Jaitley rolls back proposal to tax EPF

Facing a strong backlash from salaried tax payers over its proposal to tax withdrawal from retirement funds, the government has decided to withdraw the budget proposal that sought to create a pensioned society by discouraging full withdrawal.  There is at present no tax on withdrawal from employee provident funds and other superannuation funds. In the recent budget for FY17, the government has proposed that withdrawal in excess of 40% of the accumulated corpus will be taxed.  The government ministers have been flooded on social media to withdraw the proposed tax.  A day after the budget government had issued a statement clarifying the intent behind the proposal and its intent and its limited impact, but the criticism continued prompting the government to withdraw the tax.  (Source - Economic Times)

Section 44ADA--overview

The professionals have been brought under the ambit of Presumptive Taxation for the first time in history of Indian Taxation by virtue of Section 44ADA proposed in the Union Budget 2016. It would be a welcome step provided that the proposed Net Profit (NP) rate would be rational.

The Presumptive NP rate of 50% on Professionals and their Partnership Firms, as proposed in the Union Budget 2016 u/s 44ADA, is on very higher side and may cause very high tax incidence on such professionals and their partnership firms. Net Profit Rate should be fixed at a maximum of 30% instead of proposed 50%.

Besides, interest and salary to the partners should be allowed to all partnership firms including firm of professionals out of the Presumptive NP of the firm, as per prevailing provisions of Sec 44AD in force applicable to business partnership firms at present. Its disallowance, as proposed in Finance Bill 2016 may create a havoc for professionals partnership firms, where huge amount is drawn as salary by working partners in accordance with the partners’ remuneration limits as suggested u/s 40(b) of the I.Tax Act.

It is also worthy to mention here that the rate of Presumptive income on Professionals was recommended @33.33% in the draft report of Justice R.V Easwar Committee to simplify provisions of the Income Tax Act in this January month itself, which (33.33%) was widely opposed.

But the bureaucrats in corridor of North Block remembered only to cover the professionals under presumptive taxation, following only one part of the recommendations made in the report of Justice R.V Easwar Committee. However, these bureaucrats set aside the recommended NP rate of 33.33% on such professionals, while drafting the budget proposals and chosen for much higher rate of 50% in a very abrupt and tyrant manner.

The presumptive NP rate on professionals and their partnership firms should be capped to 30% which is also close to the rate of 33.33% recommended, after considering the finer details, minor aspects and lot of research, by Justice R.V Easwar Committee recently.

How Hypothetical and absurd position, provisions of Section 44ADA of Income Tax Act would be creating. The provision are only applicable on professional and this case highlights the case of partnership firms.


The provisions provides as follows:

a) 50% of the Gross Receipts would be treated as the Net Income of the assessee firm.

b) No deduction towards Remuneration and Interest would further be allowed to the firm.

c) The deduction towards Interest and Remuneration would be deemed to be allowed to the firm.

d) The Remuneration and Interest would again be taxed in the hands of the partners as Individual Income.

BUDGET 2016