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 Frequently Asked Questions on the Companies Act 2013

ICAI said the Union Budget 2013-14 reinforces its faith on the progressive system of taxation
March, 01st 2013

The aim of Budget 2013-14 aptly addresses the need of the hour i.e., to accelerate growth through sustainable development and inclusive growth. The tax proposals are also in tandem with this overall aim of the budget, proposed to be achieved by focusing on key areas, such as bringing in stability in tax regime, ensuring a non-adversarial tax administration, curbing tax evasion and increasing voluntary compliance. Also, the budget reinforces its faith on the progressive system of taxation, by proposing levy of surcharge on the affluent, higher taxes on luxury & sin goods, provision of additional deductions to specified categories which do not encompass the rich (like additional interest on housing loans upto a specified limit, total income cap of Rs. 12 lakhs for new investors to avail the benefit of deduction of investment in Rajiv Gandhi Equity Savings Scheme), lower abatements for service tax in case of houses of high value.

The stability in tax regime is to be achieved by maintaining status quo with respect to basic exemption limit and income-tax slabs. The rates for all the three central indirect taxes, namely, excise duty, customs and service have also not been tinkered with. The proposals to continue the benefits relating to deduction for new investors investing in equity market as well as the lower rate of tax on dividend received from foreign companies and the proposal to make minimum addition in the negative list of services introduced last year are in line with this objective. Further, another notable feature in ensuring stability is that no major retrospective amendment has been proposed this year.

Significant thrust has been placed on “non-adversarial tax administration” by proposing to constitute a Tax Administration Reform Commission to review the application of tax policies and tax laws. This would facilitate our tax systems to adopt best global practices, which is a reflection of an emerging economy. The proposal to provide for MRP based valuation in respect of branded medicaments of non-allopathy systems of medicine, will bring more clarity in law and reduce disputes. However, non-rationalization of the complex and restrictive credit provisions is a major disappointment.

The re-introduction of tax deduction at source on sale of immovable property, where the consideration exceeds Rs.50 lakhs, is certainly the need of the hour to curb tax evasion by way of undervaluing or non-reporting of immovable property transactions. Introduction of withholding tax @ 20% of profits distributed by unlisted companies to shareholders through buyback of shares would prevent significant revenue leakage. Likewise, levy of higher rate of tax on royalty and fee for technical services to non-resident to prevent categorizing distribution of profits by a subsidiary to a foreign parent company as royalty is expected to plug the loophole and prevent escapement of income.

In order to ensure that the current defaulters of service tax comply with the requirement to file returns and pay taxes, a one-time scheme called “Voluntary Compliance Encouragement Scheme” is to be introduced. A defaulter availing the scheme would be absolved of the interest and penal consequences of non-payment of tax on time. This could prove to be a significant revenue garnering measure for the Government.

The proposed introduction of investment allowance @ 15% to a manufacturing company investing more than Rs.100 crore in plant and machinery during the period 1.4.2013 to 31.3.2015, exemption of Investor Protection Fund (set-up by a depository for the protection of interest of beneficial owners) from income-tax, extension of “eligible date” for projects in power sector for availing benefit under section 80-IA would certainly go a long way in giving a boost to economy by attracting more investments. Also, considering the low phase of readymade garment industry, the restoration of “zero-excise duty route” for cotton and man-made sector at the yarn, fabric and garment stages would provide the much needed relief.

The Finance Minister, as expected, has outlined the roadmap for ushering in the GST regime by specifically allocating a sum of Rs.9,000 crore towards the first installment of the balance of CST compensation. It is hoped that the consensus of the States would be obtained and the Constitutional Amendment Bill as well as the GST Bill would be introduced in the Monsoon session of the Parliament. The Finance Minister has also assured to bring in the Direct Taxes Code Bill back before the end of the Budget Session. It is hoped that the new DTC, giving due weightage to the recommendations of the Standing Committee, would ultimately incorporate the best global practices, and at the same time, maintain the right balance between simplicity and equity.

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