Amendments to FB 2012

[CS Swati Dodhi]

Amendments to FB 2012

Capital Gains

The concessional capital gains tax rate of 10% plus applicable surcharge and cess (as against prevailing 20% plus applicable surcharge and cess on long term capital gains arising from transfer of unlisted securities, currently applicable only to certain nonresident taxpayers like Foreign Institutional Investors, will now apply to all nonresidents. In such cases, adjustments on account of inflation index or foreign currency conversions would not be available.

An offer for sale where unlisted equity shares are sold to the public included in an initial public offer, prior to listing of such shares on a recognized stock exchange, it would now be subject to Securities Transaction Tax (STT) of 0.2%. Consequently, resultant capital gains would be tax exempt if such shares have been held for more than a year (long term capital assets). In other cases (where they are held for less than a year) the capital gains would be subject to a concessional 15%[ plus applicable surcharge and cess] tax. This provision would apply from 1 July 2012.

Enabling provisions have been introduced to facilitate tax neutral conversion of an Indian branch of a foreign company engaged in banking business into an Indian subsidiary company, where such conversion is carried out in accordance with the scheme framed by the Reserve bank of India, and subject to such other conditions as may be notified by the GOI.

Filing Return of Income

The FB 2012 had proposed that every resident, who has any asset (including financial interest in any entity) located outside India, or signing authority in any account outside India, would compulsorily be required to furnish a Return of Income  even if the person does not have any taxable income. This provision has now been amended to restrict this requirement only to a person who is a resident and ordinarily resident. Accordingly a person who is resident but not ordinarily resident is excluded from the requirement of this provision.

Minimum Alternate Tax (MAT)

Taxation under MAT provisions is required when tax liability, computed at specified percentage of book profit [Currently 18.5%], is higher than that under the normal computation.

The book profit is computed by adopting the net profit as per profit and loss account, prepared according to relevant provisions of the Indian Company Laws and further calculation by adjustments as specified under MAT provisions. .

Companies like banking, insurance, electricity and few other governed by specific laws where a different form of P&L has been prescribed. The FB 2012 had provided that, effective from tax year 2012-13; such companies will need to prepare P&L in accordance with the specific laws governing them.

The amendment to FB 2012 provides that, for earlier tax years, such companies have the option to prepare P&L in accordance with the ICL requirements.The amendment to FB 2012 also provides that MAT provisions would not apply to a company carrying on the business of Life Insurance. This applies retrospectively from 1 April 2001 i.e. the date from which current MAT provision was inserted in the ITL.

Withholding tax/Tax collection at source (TCS)

The FB 2012 had proposed a lower rate of tax of 5%[ Including withholding tax] on interest on external commercial borrowings (ECB) by Indian companies engaged in certain specified businesses and as approved (including rate of interest payment) by the GoI. This has now been extended to all businesses. Furthermore, the lower rate would also apply on funds raised by way of issue of long term infrastructure bonds from a source outside India. This applies for borrowings from 1 July 2012 to 1 July 2015.

The FB 2012 proposed to introduce withholding tax at the rate of 1% on transfer of immovable property by residents for consideration exceeding specified threshold limits. This has been withdrawn at the stage of passing of the FB 2012 by the Lok Sabha.

The FB 2012 also proposed to introduce TCS on cash sale of jewellery or bullion in excess of threshold of INR 0.2 million where seller needs to collect tax from buyer at the rate of 1%. The threshold limit in respect of cash sale of jewellery has been increased to INR 0.5 million whereas the limit for sale of bullion has been retained at INR 0.2 million. It has been clarified that bullion would not include any coin or any other article weighing 10 grams or less. These provisions apply from 1 July 2012.

Specific provisions have been included in the ITL stating that where interest is charged on a taxpayer for failure to deduct taxes or pay the taxes withheld pursuant to an intimation on processing of quarterly TDS statements, additional interest would not be charged in respect of the same period under a different provision that treats the payer as a taxpayer-in default. This applies from 1 July 2012.

Enabling provisions have been introduced in the ITLfor the GoI to notify association, institution or body or class of associations, institutions or bodies where payments to them as may be specified would not be subject to withholding tax.

Deduction in respect of investment in equity Shares

The FM, while introducing the FB 2012 on 16 March 2012, had announced that a new scheme providing for deduction in respect of investment in equity shares by new retail investors would be introduced. But there was no such specific provision in the FB 2012. A new section has now been introduced, providing for ‘once-in-a-life time’ deduction of up to INR 25,000 to a resident individual taxpayer, who is a new retail investor,and invests in accordance with a scheme to be notified by the GoI..

The deduction would be restricted to 50% of the amount invested in listed equity shares subject to a lock-in period of three years. Furthermore, the deduction would be available only if the gross total income ofthe individual is below INR 1million.

Other amendments

The FB 2012 had proposed that consideration for issue of shares received by a closely held company in excess of the fair market value of such shares would be regarded as income in the hands of the company receiving such consideration. Now the amendment to FB 2012 enables the GoI to exempt a class or classes of persons from application of the above provision by way of a notification

The exemption for a Venture Capital Company (VCC)/Venture Capital Fund (VCF) from Dividend Distribution Tax (DDT), Income Distribution Tax and withholding tax on payment to investors which was proposed to be withdrawn by the FB2012 has been reinstated in the amendments to the FB 2012.

Comments

All the amendments in FB are treated to be as welcome amendments.

As a process, the FB 2012 would also need to be approved by the Rajya Sabha (upper house of the Parliament) and assented by the President of India, before it is enacted as law.