Business Advisor - March 10, 2013 - Preview
Transcript of Business Advisor - March 10, 2013 - Preview
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Volume II Part 5 March 10, 2013 1 Business Advisor
BusinessAdvisor
(Fortnightly inputs for professionals and executives)
Volume II Part 5 March 10, 2013
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Volume II Part 5 March 10, 2013 2 Business Advisor
Contents
Tokenism in taxing the superrich
T. N. PandeyTaxing people on capacity-to-pay taxis a well-recognised
principle in tax jurisprudence. If considered necessary, it should have beendone with adequate homework.
Report on annual general meeting: New provision
Dr S. ChandrasekaranThe Bill provides that every listed public company
shall prepare a report on each AGM. The report will also include the
confirmation to the effect that the meeting was convened, held and
conducted as per the provisions of the Act and rules made thereunder.
Budget: Focused on fundamentals but hits out at citizens
Dr Sanjiv AgarwalOn the indirect taxes side, while there is no change in
peak rates of customs, excise and service tax, the hike in rates of a few
items like SUVs, imported vehicles, cigarettes etc., cannot be criticised.
On expected lines and little to cheer
Dr B. Yerram RajuThe supply side issues, as were made out to be the
key factors for food inflation at the current growth in agriculture, found little
mention in the budget.
Budget 2013: Round up of changes in the direct tax laws
V. K. SubramaniWhere an immovable property other than agricultural
land is transferred by a resident, the transferee must deduct tax at source
at 1% of the apparent consideration.
(Cover page cartoons: Bimbadhar Mishra)
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Volume II Part 5 March 10, 2013 3 Business Advisor
Tokenism in taxing the superrich
T. N. Pandey
There was considerable debate over a few weeks
preceding the presentation of the Budget for the F.Y.2013-14 concerning the income and wealth-tax
assessments of persons described as superrich. In this
context, suggestions were made, inter-alia, for
increasing income tax and wealth tax for such persons,
review of the Wealth-tax Act and re-introduction of
Inheritance Tax (earlier called Estate Duty). Even the
FM, Shri P. Chidambaram mentioned, in some of his
addresses, the revamping of Wealth-tax Act and initiating debate regardingInheritance tax.
Arguments in favour of and against the
proposal
Such suggestions got mixed responses
some supporting the suggestions and some
opposing the same. The persons favouring
the proposal felt that this needs to be done:(i) to augment Governments revenue; (ii) to
fulfil the mandate of the Constitution for
preventing concentration of income and
wealth in fewer hands; (iii) for adhering to the
principle of capacity to pay based taxation;
and (iv) bringing equity in the tax system. The persons opposing it argued
that the suggestion is unacceptable because: (i) this would result in lowering
the tax revenue; (ii) discourage entrepreneurship; (iii) halt economicdevelopment in the country; (iv) depress demand; (v) lead to flight of talent
and capital; and (vi) create incentive for tax evasion. Such assumptions are
apparently mere conjectures and surmises, un-backed by any empirical
studies in favour or against the proposal.
Support for the proposal
The issue has been debated in India and abroad. Shri C. Rangarajan, Key
Economic Advisor to the PM, Dr Manmohan Singh, supported the proposalsaying that the Government should consider imposing a marginal tax rate
higher than the current 30% on those with substantially higher income.
Shri Azim Premji, Chairman of Wipro said that there is merit in the idea of
Azim Premji has
said that there is
merit in the idea of
having a highermarginal tax rate for
the very wealthy.
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Volume II Part 5 March 10, 2013 4 Business Advisor
having a higher marginal tax rate for the very wealthy. He posed the issue,
how one can say that rich people should pay more taxes and replied saying
that one has to be fair in a country with this kind of poverty and expressed
the view that the rich people are bringing it upon them with their
conspicuous consumption, which has reached a state of absurdity.
Shri Azim Premji, prima-facie, echoed the feelings of billionaire WarrenBuffett, when he suggested to the Congress the levy of more taxes on the
nations wealthiest individuals to cut the US budget deficit. He suggested
that tax rate should be raised for those making more than $ one million,
including on dividends and capital gains. According to Buffett, such
increase in taxes is not destructive of growth and development. He said that
the notion that high taxes discourage hiring and investment is false.
Referring to his experience of working with investors for 6 years, he said
that he did not come across one individualnot even, when capital gain taxrates were 39.9% in 1976-77shying away from a sensible investment
because of the tax rate on potential gain.
According to him, for people who invest to
make money, potential taxes have never been a
scare.
FMs half-hearted response
The FM has half-heartedly responded to such
suggestions while presenting his budget for the
year 2013-14. Para 130 of the budget speech
reads thus:
I believe there is a little bit of the spirit of Mr
Azim Premji in every affluent taxpayer. I am confident that when I ask the
relatively prosperous to bear a small burden for one year, just one year, they
will do so cheerfully.
The proposal, apparently, for higher tax on the so-called superrich in para
126 of the budget speech is just for one year.
Fiscal consolidation cannot be effected only by cutting expenditure.
Wherever possible, revenues must also be augmented. When I need to raise
resources, who can I go to except those who are relatively well placed in
society? There are 42,800 personslet me repeat, only 42,800 persons
who admitted to a taxable income exceeding Rs 1 crore per year
(For the full issue, subscribe athttp://bit.ly/ShriMagz)
Warren Buffett has
said that the
notion that high
taxes discouragehiring and
investment is false.
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Volume II Part 5 March 10, 2013 5 Business Advisor
Budget 2013: Round up of changes in
direct tax laws
V. K. Subramani
There is no change in basic exemption limit for personal
taxpayers. However, for individual resident assessees
where the total income does not exceed Rs 5,00,000, a
rebate of income-tax of Rs 2,000 or 100% of the tax
whichever is less, is allowable. This is provided by
insertion of section 87A.
Agricultural land chargeable to capital gains has been
redefined by dispensing with the requirement of notifyingthe municipalities. Hereinafter, agricultural lands beyond
all municipal limits subject to certain distance based on the population of
the municipality would be chargeable to tax.
The requirement for ascertaining the distance has been clarified as aerial
basis and not by road distance. Decision such as CIT v. Lal Singh (2010) 195
Taxman 420 (P&H)advocating road distance measurement henceforth will
not be applicable.
Amounts received from keyman insurance policy is chargeable to tax.
However, when such policy is assigned in favour of employee it gets
converted into an ordinary policy and thus the amount received on maturity
was held as not taxable in CIT v. Rajan Nanda (2012) 18 taxman.com 98
(Del). Now, the Finance Bill, 2013, proposes to nullify the impact of the
decision by holding that the assignment of policy will not be tax-free.
The annual premium on life insurance policy when it exceeds 10% of thecapital sum assured, the amount received on the maturity of the policy is
chargeable to tax, as exemption under section 10(10D) will not be
applicable. The Finance Bill, 2013, extends the cap for annual premium to
15% in the case of persons having disability or severe disability referred to
in section 80U or in the case of persons suffering from disease or ailment as
Decision such as CIT v. Lal Singh (2010) 195 Taxman 420(P&H)advocating road distance measurement henceforth will
not be applicable.
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Volume II Part 5 March 10, 2013 6 Business Advisor
specified in the rules made under section 80DDB.
To promote industrialisation, a new section 32AC is proposed to be
inserted to allow 15% of the actual cost of plant and machinery installed by
the assessees during the period from 01.04.2013 to 31.03.2015. This
deduction is in addition to additional depreciation and regular depreciation
prescribed in section 32. This allowance will not reduce the actual cost ofasset and there are certain conditions attached for availing the allowance.
In the case of banks (not being banks incorporated outside India),
provision for doubtful debts in respect of rural advances is maintained
separately. There is no provision for doubtful debts with regard to non-rural
advances. When bad debt is written off with regard to rural advances, any
excess over and above the provision maintained is deductible. With regard
to non-rural advances, any bad debt write-off is deductible without makingany reference to provision for doubtful debts which are maintained only in
respect of rural advances. The Finance Bill, 2013, proposes to remove the
distinction, whereby any bad debt write-off is deductible only when it
exceeds the provision maintained. In other words, though the provision for
doubtful debts is maintained for rural advances, when bad debts of non-
rural advances are written off it is not deductible unless such write-off
exceeds the provision maintained. This would upset the interpretation and
clarity provided by the apex court in the case ofCatholic Syrian Bank Ltd v.CIT (2012) 18 taxman.com 282 (SC).
In the case of immovable property held as stock in trade, upon their sale
the stamp duty valuation does not have any significance since the
provisions of section 50C meant for adopting stamp duty valuation would
deal with transactions in the nature of capital asset. In order to tax
transactions in immovable properties held as stock in trade chargeable
under the head profits and gains of business or profession the Finance Bill,
To promote industrialisation, a new section 32AC is
proposed to be inserted to allow 15% of the actual cost of
plant and machinery installed by the assessees during the
period from 01.04.2013 to 31.03.2015. This deduction is in
addition to additional depreciation and regular depreciation
prescribed in section 32.
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Volume II Part 5 March 10, 2013 7 Business Advisor
2013, proposes to insert section 43CA. The impact would be that, even
where the immovable property is held as stock in trade and is transferred,
the sale consideration vis--vis the stamp duty valuation whichever is
higher would be adopted for the purpose of computing income chargeable
under the head profits and gains of business or profession.
Where an immovable property is transferred for inadequate consideration
the transferor is chargeable to tax based on stamp duty valuation under
section 50C. This does not impact the transferee in any manner.
The Finance Bill, 2013, proposes to tax the transferee where the apparent
consideration is less than the stamp duty value of immovable property by
more than Rs 50,000. Even cases where there is no consideration, the
stamp duty value if it exceeds Rs 50,000 it is chargeable to tax in the hands
of transferee as income under the head other sources.
For those who do not own any house property and who resort to
acquisition of house property by availing loan from financial institution an
extra incentive is proposed in the Finance Bill, 2013.
It is applicable to individuals in respect of interest on housing loan and it is
one-time incentive of Rs 1 lakh.
Where the interest payable for the financial year 2013-14 is less than Rs 1lakh then the difference between Rs 1 lakh and the actual amount of
interest is deductible in the financial year 2014-15.
This deduction seems to be in addition to the regular deduction available
under section 24. The character of asset must be residential house and not
necessarily self occupied residential house.
Where an immovable property other than agricultural land is transferred
by a resident, the transferee must deduct tax at source at 1% of theapparent consideration at the time of payment to the transferor in cash or
by way of cheque or by any other mode.
This is proposed to be brought in by insertion of section 194-IA. Where the
apparent consideration does not exceed Rs 50 lakh, this tax deduction at
source provision will not be applicable.
The Finance Bill, 2013, proposes to insert section 271FA whereby persons
who are liable to furnish annual information return and fail to furnish suchreturn within the prescribed time may be directed to pay by way of penalty
at Rs 500 for every day during which failure continues.
(V. K. Subramani is Chartered Accountant, Erode)
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Volume II Part 5 March 10, 2013 8 Business Advisor
List of contributors to this issue
T. N. Pandey, Former Chairman, CBDT, Noida
Dr S. Chandrasekaran, Chandrasekaran Associates, Delhi
Dr Sanjiv Agarwal, Agarwal Sanjiv & Company, Jaipur
Dr B. Yerram Raju, Regional Director, PRMIA, Hyderabad
Bimbadhar Mishra, Andhra Bank, Hyderabad
V. K. Subramani, Chartered Accountant, Erode
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Volume II Part 5 March 10, 2013 9 Business Advisor
Published by:Shrinikethan, Chennai http://bit.ly/ShriMap
Edited by:D. Murali http://bit.ly/dMurali http://bit.ly/TopTalk
March 10, 2013
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