Important change in the law on the income tax deduction..

Finance Minister P Chidambaram’s Budget proposals yesterday had an important change in the law on the income tax deduction for political funding.
The Finance Bill, 2013, has proposed to disallow deduction of any sum contributed through cash in computation of income for tax purposes from April 1, 2014.
The move, along with the one per cent TDS on property transactions above ? 50 lakh, is being seen as a step to counter movement of unaccounted income.
Currently, under the provisions of Section 80GGB of the Income Tax Act, any sum contributed by an Indian company to any political party or an electoral trust in the previous year is allowed as deduction in computing the total income of the company.
A similar deduction is available to an individual, other than alocal authority and an artificial juridical person under section 80GGC. There is no specific mode provided for making contributions to political parties.
“With a view to discourage cash payments by the contributors, it is proposed to amend the provisions of aforesaid sections, so as to provide that no deduction shall be allowed under section 80GGB and 80GGC in respect of any sum contributed by way of cash,” said the memorandum explaining the provisions in the Finance Bill, 2013.
An internal paper of the Central Board of Direct Taxes had said the Election Commission of India had expressed serious concern about the crores in cash being deposited with some political parties, and regarding the manner of spending. It had also pitched for fixing a limit beyond which all contributions to political parties should be made through account payee cheques only.
STEP TO COUNTER ‘BLACK’ ECONOMY
[1]A sum contributed by an Indian company to any political party or electoral trust in the previous year is allowed as a deduction now [1]The Budget has proposed a 1% tax deduction at source on any property transaction above ? 50 lakh
Action likely soon on more powers to Sebi

Budget to help India Inc save 25,000 cr in 2 years

Mumbai, 1 March

India Inc has a good reason to step up capital expenditure ( capex).

With the Budget proposing an additional investment allowance of 15 per cent for assets acquired and installed in the next two years for over ₹ 100 crore in capital spending, companies are expected to get a total benefit of ₹ 25,000 crore.

According to an estimate by the Centre for Monitoring Indian Economy ( CMIE), India Inc plans fresh capital expenditure of around ₹ 5,00,000 crore in 400 projects in the next two financial years. “ There will be a saving of up to five per cent from our capital cost and this will help new units to break even faster,” said Ashok Bhandari, chief financial officer, Shree Cement.

Reliance, the Birlas and the Tatas, which have a number of projects lined up, will benefit from this move. So will public sector companies.

The estimated saving of around ₹ 25,000 crore on project cost is equivalent to 7.3 per cent of the aggregate profits of BSE- 500 companies in FY12. The savings will flow directly into their bottom line and improve the financial viability of projects.

Aditya Birla Group flagship Grasim Industries would be another gainer. The company, with subsidiary UltraTech Cement, is investing ₹ 16,000 crore in augmenting fibre and cement capacities. Nearly a third of this amount is likely to be spent in the next financial year and the company can claim investment allowance on it. K K Maheshwari, managing director of Grasim Industries, said the move would definitely boost their investment plans. He did not quantify the benefit.

“This would imply an almost doubling of the commissioning of manufacturing projects compared to what has been seen in the previous two years,” said CMIE’s managing director Mahesh Vyas. One of the top beneficiaries of this scheme would be Reliance Industries, which intends to invest around ₹ 1,00,000 crore in the next five years. RIL is investing $ 8 billion (₹ 43,784 crore) in expanding its capacity in petrochem and refining and to roll out its telecom business by the year- end.

“The scheme will surely benefit our planned capex at Manesar and Gurgaon,” said Ajay Seth, chief financial officer of Maruti Suzuki, without giving the actual savings. In the last three years, the company had spent on an average ₹ 2,000 crore every year on capex.

15% allowance on capital expenditure would help PSUs, too SOME BIG BENEFICIARIES

Companies with strong balance sheets and a ready pipeline of projects would benefit. The deduction is in addition to regular depreciation benefits and includes investments in equipment and machinery but excludes those in land and buildings

(₹ crore) Company Expected capex* Savings**

IOC 30,000 1,500 ONGC 21,900 1,095 Hindalco 20,000 1,000 SAIL 27,300 1,365 RIL, Jamnagar 16,000 800 MRPL 12,200 610 NMDC 15,500 775 Grasim 5,500 275 Maruti Suzuki 4,000 200 Shree Cement 1,500 75

*During FY14 and FY15; ** At the rate of 5% of capex amount Source: CMIE, company reports

BUDGET HIT ON POLITICAL PARTIES

DEV CHATTERJEE & KRISHNA KANT

RBI to infuse 10,000- crore liquidity via OMO route

Liquidity conditions are likely to remain tight and may not fall below, 1 lakh crore in the near term, despite the Reserve Bank of India (RBI)’ s announcement of open market operations ( OMOs) on Friday.
After market hours today, RBI announced an OMO up to ₹ 10,000 crore on Friday. OMOs are market operations conducted by RBI by way of sale/purchase of government securities to adjust rupee liquidity conditions.
The government securities RBI will purchase through OMO are 7.32 per cent 2014, 7.59 per cent 2016, 8.15 per cent 2022 and 8.20 per cent 2025. “ The liquidity deficit in the system is not expected to improve in a major way due to this. We need one more OMO next week and
probably another one, depending upon the situation,” said Prasanna Patankar, senior vice- president, STCI Primary Dealer.
Today, banks borrowed ₹ 1,28,400 crore from RBI’s daily liquidity adjustment facility (LAF), compared with an average borrowing of slightly above ₹ 1 lakh crore last month, far ahead of RBI’s comfort zone.
But, the announcement of the OMO is expected to be positive for government bonds.
“The bond market will get comfort and yields are expected to drop on Tuesday,” said S Srinivasaraghavan, executive vice- president and head ( treasury) at Dhanlaxmi Bank. The yield on the 10- year benchmark bond 8.15 per cent 2022 fell marginally on Monday at 7.7976 per cent.
It is expected to drop by another two to five basis points tomorrow. The Street believes to comfort liquidity conditions, government spending, having slowed down during the current financial year, should pick up.
“Government spending needs to flow into the system to bring down the liquidity deficit. OMO will just support the market. There is oil subsidy worth ₹ 25,000 crore that is expected. This fiscal, the
government has been trying to control its spending to keep the fiscal deficit under control,” said a treasury official of a private sector bank.
The government has been trying to control spending in a bid to stick to the fiscal deficit target of 5.3 per cent of GDP for FY13. Last Friday, the government had cancelled the last scheduled auction of
government bonds worth ₹ 12,000 crore.
As the final instalment of corporate advance tax is due on March 15, the Street expects the liquidity deficit to worsen.
“Around the first 10- 12 days of March, the system loses around 15,000- 20,000 crore on account of rise of currency with public. This is a seasonal phenomenon due to which liquidity deficit will again go up and subsequently, there will be advance tax outflows of ₹ 60,000- 70,000 crore,” said Suyash Choudhary, head ( fixed income), IDFC Mutual Fund.
LAF (cr) Source: RBI

As the final instalment of corporate advance tax is due on March 15, the Street expects the liquidity deficit to worsen EPFO to pay 8.5% interest on deposits for FY13

Decision taken at the meeting of the Central Board of Trustees PRESS TRUST OF INDIA New Delhi, 25 February Retirement fund body Employees Provident Fund Organisation ( EPFO) today decided to pay 8.5 per cent interest rate to its over 50 million

subscribers on their provident fund ( PF) deposits for the financial year 2012- 13, higher than the 8.25 per cent provided in the previous financial year.

The decision was taken at the meeting of the Central Board of Trustees (CBT), the highest decision making body of EPFO, chaired by the labour minister.

“A decision has been taken to pay 8.5 per cent interest on PF deposits. But we have expressed our reservations, as we wanted higher interest rate,” said D L Sachdev, secretary, All India Trade Union Congress, after the CBT meeting. Earlier, a note prepared by EPFO for consideration of the February 15 meeting of the Finance and Investment Committee ( FIC) had said, “... 8.5 per cent rate of interest for the year 2012- 13 is feasible.” According to the EPFO estimates, apayment of 8.6 per cent interest rate on PF deposits would result in a deficit of 240.49 crore whereas a8.5 per cent interest rate for the current financial year would leave a surplus of ₹ 4.13 crore.

In the FIC meeting, union leaders refused to discuss the issue regarding payment of interest in the current financial year, as the agenda note for the issue was not provided in advance to them, sources said, adding the note was tabled during the meeting.

They had said the EPFOs estimates would be directly tabled before the CBT meeting ,for final approval. The notification on interest rate is issued by the government after concurrence with the finance ministry. Usually, EPFO announces interest rate at the beginning of the year, but there has been a delay this time.

Trade unions have been pressing for an early meeting of the CBT to decide on the interest rate for the current financial year. EPFO had paid 8.25 per cent interest to its subscribers for 2011- 12, lower than the 9.5 per cent disbursed in 2010- 11. Interest rate for the financial year 2010- 11 was 9.5%.

Usually, EPFO announces interest rate at the beginning of the year, but there has been a delay this time State FMs’ panel agree on GST law: Odisha minister

Instances of terror financing in country

Over 1,400 instances of terror financing in country’s economic channels were red-flagged by intelligence and security agencies last year, a latest report of the Finance Ministry says, marking a 300 per cent jump in such suspicious transactions.

The Financial Intelligence Unit (FIU), which functions under the ministry, has reported that it had received 1,444 reports during 2011-12 from agencies like the Intelligence Bureau, the Research and Analysis Wing and those in the economic domain and affiliated to the Income Tax and Customs departments.

The figure of such reports from these agencies stood at 428 during 2010-11, the agency says.

“The FIU also supports the efforts of domestic intelligence and law enforcement agencies against terror financing by providing information specifically requested by them, either by searching its database or by calling specific information from the reporting entities,” the report says.

The FIU is the national agency responsible for receiving, analysing and disseminating suspicious transaction reports (STRs) to security and anti-money laundering and tax evasion departments of the country.

The agency also reported a more than 100 per cent rise in the number of STRs received during 2011-12 as it collected a total of 69,224 such reports during this period as compared to 20,698 STRs during 2010-11.

The instances of reportage of fake currency in Indian banking channels are also on the rise, the FIU says.

RUN- UP TO THE BUDGET 2013- 14

Harmonising excise duty and service tax laws on cards in Budget |GST is a tax on both goods and services. As such, laws governing goods and services cannot be different |FM would meet the empowered committee of state finance ministers on GST thursday |Outline of GST likely to be given in Budget |Some more health and education services likely to be included in the negative list TOWARDS GST

Goods & Services Tax (GST)

As a prelude to the Goods & Services Tax ( GST), the finance ministry might harmonise service tax and excise duty laws in Budget 2013- 14. Also, it is likely to simplify Cenvat credit rules that allow set- off of excise duty or service tax paid on inputs against tax liability on the final product. It is also considering bringing some health and education categories in the negative list for taxation of services.
At present, excise duty and service tax are levied under two Acts. The ministry has shown its intent to merge the laws as a step towards GST. To begin with, it might harmonise essential processes like registration, return and assessment compliance.
Cenvat credit and provisions related to the settlement commission and appellate matters are common for service tax and excise duty.
A finance ministry official said the Central Board of Excise & Customs was also trying to address the issues related to input tax credit. It was in the process of simplifying the existing Cenvat credit scheme.
“If Cenvat credit rules are simplified, it will be a good reform. They should also address the concerns with regard to inverted duty structure, where raw material duty is higher than the finished product,” said Pratik Jain, partner, KPMG. He added wherever there was a difference between the provisions of central excise and service tax, rules should be aligned. If a refund was allowed on export of excise- exempt goods, that should be allowed for export of services, too.
In last Budget, too, Cenvat credit rules were amended to simplify the procedure for refund of unutilised credit on account of exports. Credit was allowed on sale, supply, repair, rent and insurance of motor vehicles. The amendments allowed credit on delivery of goods and payment of service tax by the service receiver on areverse- charge basis. However, experts say it has not helped much.
Officials also said some education and health categories might be brought under the negative list, which keeps 17 services outside the tax net. Currently, education is kept under the negative list at the pre- school level, up to higher secondary school, as part of acurriculum to obtain a qualification, and as part of an approved vocational course.
Auxiliary educational services and renting of immovable property by educational institutions in respect of education have been exempted from service tax. Healthcare services provided by clinical establishments, authorised medical practitioners or para- medics are also exempt. Budget might move some of these services, as well as bring in some more services taxed currently, to the negative list.
Move seen as prelude to GST rollout; rules for Cenvat credit also likely to be simplified

I- T dept to simplify norms on ECB interest payment

The Income Tax ( I- T) Department is looking at ways to relax and simplify the rules on tax collection and credit associated with foreign investments into the country, especially via external commercial borrowing ( ECB).
Concern has been raised on the method of identification for providing tax credit and the requirement of a permanent account number (PAN) for deduction of withholding tax.
Industry had raised these two issues before a Central Board of Direct Taxes committee looking into the matter, said a senior finance ministry official.
The panel is to soon give its report to the ministry and is expected to suggest simpler norms, said the official.
One member of an apex business chamber, who’d taken part in the discussions, said the PAN requirement for a lower withholding tax on ECB interest payments was seen as a major trouble area.
From April 1, 2010, under Section 206A of the I- T Act, any person entitled to receive a sum or income or amount on which tax is deductible in these cases is required to furnish his PAN to the person responsible for deducting such tax. If the PAN isn’t there, tax has to be deducted at 20 per cent.
The Finance Act, 2012, introduced Section 194LC in the I- T Act, providing for a lower withholding tax at five per cent on interest payments by Indian companies on borrowings made in foreign currency by such companies from a source outside India.
The chamber representative said with foreign investors reluctant to get into the process of getting a PAN, this differential treatment was proving an irritant.
The ministry official said the department will have to find a way out in which individual investors were not troubled but the required information was also with the department.
Govt likely to harmonise excise, service tax laws in Budget