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Practical Issues in Income tax and Wealth tax. Key FDI Sectors Mineral and Clay based products Traditional Industries Tourism Auto Components Agro Processing.

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Presentation on theme: "Practical Issues in Income tax and Wealth tax. Key FDI Sectors Mineral and Clay based products Traditional Industries Tourism Auto Components Agro Processing."— Presentation transcript:

1 Practical Issues in Income tax and Wealth tax

2 Key FDI Sectors Mineral and Clay based products Traditional Industries Tourism Auto Components Agro Processing

3 International taxation is the study of tax implication on a transaction which involves at least one non resident. International taxation predominantly involves understanding of domestic taxation laws of the respective countries as well as the DTAA.

4 Scope of total income is determined based on the following: Place of accrual of income Place of receipt of income Residential status of the assessee

5 Source of Income Resident and Ordinarily resident Resident and Not Ordinarily resident Non Resident Indian Income: Income earned and received or deemed to be earned and received in India Yes Income earned or deemed to be earned outside India but received in India Yes Income earned or deemed to be earned in India but received outside India Yes Foreign Income: Income earned and received or deemed to be earned and received outside India from a business controlled from India Yes No Income earned and received or deemed to be earned and received outside India from a business controlled from outside India YesNo

6 Nature of IncomeCondition Business IncomeWhen there is business connection in India Property incomeProperty or asset source is in India Income from transfer of a capital asset When the capital asset is in India Income from Salaries Where services are rendered in India Indian citizen, working for the Government of India and rendering services outside India Dividend IncomeDividend payable/paid by an Indian Company Interest, Royalty and Fees for Technical Services If the income is received from: -Government of India -A resident assessee except where such payment is for business outside India -A non resident assessee where the payment pertains to business in India

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8 Non residents receiving payments from India need to obtain PAN PAN is however required only if payment is subject to TDS under Chapter XVIIB Non furnishing of PAN would lead to deduction of tax at higher of: at the rate specified in the relevant provision of this Act; or at the rate or rates in force; or at the rate of 20%

9 Payments for foreign purchases Payments for foreign contracts Payment of export commission Purchase of property from non resident CBDT has issued circular no 7/2009 dated 22- 10-2009 withdrawing circulars No 23 / 1969, No 163/1975 and No 786/2000.

10 Indian address is not mandatory In the case of foreign companies proof of foreign address needs to be attested by Indian embassy Other procedures similar to that of a resident

11 Oppurtunities All remittances outside India must be accompanied with CA certificate Assessee has to furnish E Form 15CA Risks Huge risk of scrutiny by Income Tax Department Cost of substantiating claims need to be factored into Rewards do not generally match the risks

12 An individual, originally working for a foreign parent, is deputed to Indian salary He receives salary from both the Indian subsidiary and foreign parent TDS u/s 192 shall be deducted on both the salaries

13 Assessee company had entered into technical assistance agreement with a Japanese company. As per that agreement, assessee was to be given assistance of Japanese engineers for training engineers of assessee in respect of which it made certain payments to Japanese company. Assessee had obtained a certificate for nil deduction u/s 195(2)

14 Assessing Officer treated said payments as fees for technical services and assessee as an assessee-in- default for not deducting tax at source on said payments Since assessee had been granted no objection certificate under section 195(2) permitting non- deduction of tax at source and said certificate had never been cancelled, assessee was not liable to deduct tax at source and, therefore, it could not be treated as an assessee-in-default CIT vs Swaraj Mazda [2011] 198 TAXMAN 305 (PUNJ. & HAR.)

15 Assessee is not required to deduct tax at source under section 195 in respect of payment made to foreign companies towards bandwidth charges because same are not in the nature of royalty, fees for technical services or relate to any item of expenditure covered under section 40(a)(i) Infosys Technologies Ltd.vs Deputy CIT [2011] 10 1 (BANG. - ITAT)

16 The moment a remittance is made to a non-resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i.e., chargeable under sections 4, 5 and 9 Section 195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances being made to non-residents outside India; rather it gets attracted to cases where payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable GE India Technology Cen. (P.) Ltd. [2010] 193 TAXMAN 234 (SC)

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18 For the Financial year 2008-09: - Estimated tax collection of Rs 400 crores - Estimated tax collection cost of Rs 174 crores Projections for the Financial 2009-10: - Projected tax collection of Rs 425 crores - Projected tax collection cost of Rs 216 crores **Source: The Economic Times dated 8 th April 2009 For every rupee spent, the Government earns Rs 1.97 of wealth tax.

19 For every Re spent, the Government collects Rs 60 of income tax (all categories) For every Re spent, the Government collects Rs 701 of corporate income tax Cost of collection (Direct Taxes) in other countries: Britain :1.53% Germany:2.35% Australia:1.15%

20 Note: In Austria, Denmark, Germany, Finland, Iceland, Spain and Luxembourg wealth tax was abolished during the last decade The concept of Wealth tax does not exist in Belgium and Great Britain. NomenclatureCountry Solidarity tax on WealthFrance Wealth taxGreece, Norway, Switzerland and Netherlands Property taxUS

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22 AssesseeResidential Status Assets in India Debts in India Assets outside India Debts outside India Individual – Citizen of India Resident and ordinary residentIncludedDeductibleIncludedDeductible Individual – any other case including foreign national who is a resident and ordinary resident Indian Citizens: Non resident or not ordinary resident Foreign Nationals: Resident or non resident. IncludedDeductibleNot includedNot Deductible HUF Resident and ordinary residentIncludedDeductibleIncludedDeductible Non resident or not ordinary resident IncludedDeductibleNot includedNot Deductible Company ResidentIncludedDeductibleIncludedDeductible Non ResidentIncludedDeductibleNot includedNot Deductible

23 1% on taxable wealth in excess of Rs 30 lacs Exemption limit of Rs 30 lacs is applicable to all category of assessees No surcharge levy on wealth tax No cess levy on wealth tax

24 Exemption u/s 5(v) is available provided: Assessee is an individual Assessee is a citizen of India or a PIO Assessee was ordinarily residing in a foreign country Assessee has returned to India with an intention to permanently reside in India

25 The term ordinarily residing has not been defined Madras High Court in the case of Periannan vs CWT has enunciated that: Ordinarily residing refers to residence of long duration outside India A person for whom India is a permanent residence cannot claim exemption under this section merely by travelling abroad and residing abroad for a period of one year and thereafter returning to his own country

26 Money Value of assets brought into India Value of assets acquired out of such money: Within one year prior to the date of return Any time after the date of return Period of Exemption: - 7 consecutive previous years beginning from the year of return.

27 Kerala accounts for 20% of Indias gold consumption annually and India in turn accounts for about one-fifth of the worlds annual gold sales. According to World Gold Council, in 2009 the consumption of gold in India was 578.5 tons. It rose to 963.1 tons (worth Rs 1,73,330 crore) in 2010, with an increase of 68 per cent.

28 Gold in excess of 150 sovereigns Purchase of Luxury cars (Benz C Class and above) without loans Cash in excess of Rs 50k for individual / HUF More than one self occupied property Property under construction held abroad Double taxation

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30 Sec 115BBD proposed for the Assessment year 2011-12 only Dividend income from foreign subsidiaries shall be taxable @ 15% of gross dividend No deduction is allowed Provisions applicable only for Indian companies Dividends not to include deemed dividend u/s 2(22)(e). Divakar Vijayasarathy & Associates

31 Benefit applicable for only one year Subsidiary holding need not carry voting rights. Divakar Vijayasarathy & Associates

32 Every non resident having a liaison office in India shall submit a statement of activities within 60 days from the end of the financial year in the prescribed form – Sec 285. This amendment shall be effective 1 st of June 2011. Divakar Vijayasarathy & Associates

33 Interest income on infrastructure debt fund, earned by a non resident, shall be taxable at 5% of the gross amount- Sec 115A. A new section 194LB has been proposed to provide for TDS @ 5% on payments made by such funds. Income of a notified infrastructure debt fund shall be fully exempt u/s 10(47) Effective 1 st of June 2011. Divakar Vijayasarathy & Associates

34 It is proposed to provide that instead of the fixed variation of +-5%, the allowable variation will be such percentage as may be notified- Sec 92C. TPO shall have the jurisdiction to determine ALP in respect of other international transactions, which are noticed by him subsequently, in the course of proceedings before him- Sec 92CA. Divakar Vijayasarathy & Associates

35 TPO shall be empowered to conduct on the spot survey and verification and exercise the powers given u/s 133A- Sec 92CA(7) It is proposed to extend the due date for corporate assessees, to whom the provisions of transfer pricing apply, to 30 th of November.(The amendment is effective from 1 st of April 2011) Divakar Vijayasarathy & Associates


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