Legal Updates on 1st Apr-09

Notification on TDS and TCS

New Delhi
March 31, 2009

The Board has amended the rules relating to Tax Deduction at Source (TDS) and Tax Collected at Source (TCS) vide Notification No. S.O.858 (E) dated 25th March 2009.

In this context, taxpayers are informed that the new Form 17 (the challan for payment of TDS and TCS) is applicable only for payment of tax deducted or collected at source on or after 1st April 2009. Therefore, in respect of any TDS or TCS made before the 1st April, 2009, the payment will continue to be made to the credit of the Central Government by using the challan in Form No. 281 (i.e. the old challan form) even after 31st March 2009.

The Central Board of Direct Taxes will shortly issue a detailed circular on the amended rules relating to TDS and TCS.

No banking cash transaction tax from Apr 1

New Delhi
March 31, 2009

The slowdown may be pinching everyone’s pockets, but there’s a marginal tax relief in sight. Come Wednesday, and the curtains will be drawn on the banking cash transaction tax (BCTT). The withdrawal of the tax from April 1, 2009 was announced by former finance minister P Chidambaram in Budget 2008-09. While the tax was introduced amidst heavy criticism in 2005, it’s making a quiet exit.

With the Finance Act, 2008 having provisions for withdrawing the tax, the Central Board of Direct Taxes now does not have to issue a fresh circular or notification to this end, a finance ministry official said.

The objective behind introducing the tax was to keep track of large cash withdrawals, “which leave no trail, and presumably become part of the black economy.” The BCTT is a 0.1% levy on ‘taxable banking transaction.’

These transactions include cash withdrawals of over Rs 50,000 for individuals and HUFs and Rs 1 lakh for others in a single day from non-savings bank account maintained with any scheduled bank. The tax is also applicable on single-day cash receipt exceeding Rs 50,000 for individuals and HUFs and Rs 1 lakh for others on encashment of one or more term deposits, whether on maturity or otherwise.

As the BCTT was envisaged as an anti tax evasion measure, in terms of revenue, its contribution to the direct tax kitty has not been too significant. As per the revised estimate in 2008-09, the BCTT is expected to bring in Rs 600 crore, 9% more than the revised estimate of Rs 550 crore for 2007-08. In 2006-07 also, the tax brought in the same amount of Rs 550 crore. For 2009-10, the finance ministry has made a provision of Rs 50 crore from the tax.

Now with the Financial Intelligence Unit in place, along with the mandatory use of the Permanent Account Number for high value cash transactions as well as strict norms from the Reserve Bank of India, the utility of the BCTT has gone down substantially.

“The BCTT has served a very useful purpose in enlarging the information system of the Income Tax Department. Since the information is also being gathered through other instruments introduced in the last few years, I propose to withdraw this tax with effect from April 1, 2009,” Chidambaram had said while presenting Budget 2008-09.

The UPA’s decision to withdraw the tax was also seen by some as a poll gimmick, to elicit goodwill. Budget 2008-09 was the last full fledged Budget by the p, where it announced a slew of populist measures including the Rs 60,000 crore farm loan waiver and a re-jig of the income tax slabs


Duty reduction likely on packaged software

New Delhi
March 30, 2009

The government plans to remove either the service tax or the countervailing duty on packaged software such as Microsoft Office to offer some relief to over 4,000 software retailers whose business has been rendered unviable by multiple taxes in a slowing economy.

The Central Board of Excise and Customs (CBEC), the apex body for indirect taxes, has proposed to end double taxation on software sales and is likely to come up with a clarification soon, said a senior government official. A final decision would be taken shortly, he said requesting anonymity.

The domestic market for software market in the country is estimated at around Rs 10,000 crore, but the margins are in the range of 4-5%.

When a packaged software is downloaded, it attracts service tax at the rate of 10%, as the downloading is treated as a service. It again faces countervailing duty of 8%, when a hard copy is taken or the licence is taken. The countervailing duty is levied on imported goods to provide a level-playing field to Indian companies that pay an excise duty.

The government is examining both the options — exemption from service tax and from countervailing duty. This comes after an appeal from the software industry to CBEC, following a 40% decline in sales.

The problem arose after the Union Budget 2008-09 brought customised software under the service tax net. But, the finance act did not mention the word ‘customised’, giving room to tax officials to interpret the law.

The definition prescribed for software makes acquisition of right to use packaged software also taxable, thereby leading to double taxation.

This is because sale of licences, which are acquisition of a right to use the software, would be treated as a sale of good and thereby attract CVD and Value Added Tax.


India Inc may get 2-year relief over forex losses

New Delhi
March 26, 2009

The National Advisory Committee on Accounting Standards (Nacas), which is the final word on accounting policies followed by the Indian industry, has favoured suspending for two years a key rule that requires firms to mark-to-market foreign exchange assets and liabilities, a decision which comes as a victory for corporate India, as it sits down to draw yearly financial results.

The demand to suspend this rule, known in accounting circles as AS-11 , was made by the Confederation of Indian Industry (CII) on grounds that it could severely distort the earnings of many companies. It was contended that this accounting standard, designed to address normal conditions, should be suspended for the time being, as the present market conditions were not normal.

India Inc may post better results if Nacas’ recommendations are accepted, as it would spare several companies from taking a hit to reflect the 27% depreciation of the rupee against the dollar in the past one year. Higher profits would mean higher tax collections for the government.

A similar debate is now raging in the US on whether the capital market regulator, Securities and Exchange Commission, should suspend mark-to-market accounting rule that has forced banks to report billions of dollars in asset writedowns . Nacas’ recommendations are usually accepted by the government. Nacas chairman YH Malegam declined to comment on whether the body, which was constituted by the ministry of corporate affairs, had asked for the suspension of AS-11 until April 2011.

The ministry of corporate affairs , which gives statutory force to Nacas’ suggestions through notifications , also declined to comment . Nacas consists of representatives from the ministry of corporate affairs, the Reserve Bank of India (RBI), Comptroller and Auditor General of India (CAG) and various chambers of commerce.

The decision to hold off implementing AS-11 , which would have forced companies to mandatorily account their foreign exchange losses, was taken at a Nacas meeting held in Mumbai on Tuesday.

SAVING ACCOUNTS

What is AS-11 ?
Accounting Standard-11 mandates MTM provisioning in the P&L a/cs for forex-related gains and losses. It moots forex assets & liabilities be recorded at a fair value on the date of preparation of balance sheet

Why are cos against it?
CII wants suspension of this norm on grounds that it has distorted the earnings of many cos. It contended that this accounting standard, designed to address normal conditions, should be deferred as the present market conditions were not normal