Not only govt, MNCs too responsible for tax rows: Raghuram Rajan

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Blaming multinational corporations squarely for tax controversies, Reserve Bank Governor Raghuram Rajan said their indulgence in avoidance and evasion results in prolonged legal battles.

Addressing the issue of tax havens, Rajan wondered aloud as to what makes a bulk of intellectual property reside in Cayman Islands, quipping that no one has seen scientists in so large numbers in the Caribbean isles.

“Occasionally, there is government excess, but they are not the only ones who commit excesses,” he said, delivering the 13th Nani Palkhivala lecture on ‘Strengthening the free enterprise in India’ in Mumbai.

“Multinational corporations complain all the time of excessive demand about excessive taxation, but it is also true that MNCs across the world tend to find tax avoidance and sometimes tax evasion as an appropriate technique and therefore, there is a constant fight between governments and MNCs,” he said.

In remarks that come within a week of Prime Minister Narendra Modi assuring all retrospective taxation such as the infamous Vodafone case being an issue of the past, Rajan said the movement on taxation within the country has been “positive and in right direction”.

“The movement has been positive and in right direction, including the great debate on retrospective taxation which has allowed us to clarify our thinking on this issue and the government has stated its position very clearly on the way forward.”

The academic-turned central banker said he hopes that the Bankruptcy Code gets passed in the upcoming Budget session of Parliament. The code will help facilitate credit for both large enterprises as well as smaller ones which have suffered the most under laws like the Sarfaesi Act.

“It would make it much easier for the smaller firm to get credit and also allow the large firm to get credit because now there is a way for the lenders to recover the money in the Bankruptcy Code,” he said.

Rajan said the government is also working on a plan to have unique IDs for businesses on the lines of the ambitious Aadhar programme for individuals, which will help establish credit histories and make it easier for the better-behaved firms access credit.

“The government is in the process of creating a unique firm ID, the same way as Aadhaar, which will help us identify firms and who is the promoter and thereby get a sense of the antecedents of firms that will give credit histories, which will allow banks to lend to them,” Rajan said.

He called the notion giving credit to smaller businesses for job creation in the economy as a “myth”, saying it is the large-scale firms alone which do the task effectively.

Welcoming the government’s Start-Up India plan, he said there is a need to have a large number of smaller firms which are growing to become big businesses, and one should avoid creating a tendency where the entrepreneur prefers to remain small.

The RBI Governor said it is essential to evolve into a place where money does the talking rather than other elements like one’s caste or religion, and added that businesses should also stop looking for special dispensations.

Stressing on the need for skilling people, he said “capitalism starts at the age 21” and one should not force children to undergo excessive competition before that.

Rajan said he is very optimistic about India of the present, despite the many problems it faces, saying “we have always found our way to fight the ills and emerge stronger”.

“Yes, we have our weaknesses and our excesses, but our democracy is self-correcting, and even while some institutions weaken, others come to the fore. India’s is a dynamic society, ever changing, ever rejuvenating,” he said.

Speaking before Rajan, former RBI board member Y H Malegam flagged the growing instances of trouble caused by fringe elements which are threatening the very idea of India, comparing it with the situation where a little man is causing a long shadow during what looks like a sunset.

Rajan quipped, “Even though little men cast long shadows at sunset, the sun does rise in our country.”

“In the spirit of what Palkhivala (the late eminent jurist) said, India always seems to find a way, perhaps not quickly, perhaps not linearly, but eventually in due course.”

Here’s how you can avail tax benefits through medical insurance schemes and more

Want to avail additional tax benefits and long term returns? Enjoy tax saving benefits through investing in NPS, ELSS and Medical Health Insurance on Religareonline.com

1. How to plan your taxes through NPS (National Pension Scheme)? What is the NPS all about?

National Pension System (NPS) is a voluntary retirement savings scheme which is specially designed to facilitate the subscribers to make decisions regarding their future through savings during their working life.

In the last budget, the government has introduced a special Income Tax exemption under Section 80CCD (1B), which has an upper limit of Rs.50,000/- per financial year per person. This is in addition to the normal benefits under Section 80CCD (1) that is available on other similar schemes.

Under NPS scheme, two types of accounts i.e. Tier I and Tier-II are available for the investors. In case of Tier-I NPS, government employees will have to contribute 10% of (basic+DA) and the government will match that contribution. In case of non-government employees, the minimum contribution has to be Rs. 500/- per month.

There are no such restrictions on the Tier-II NPS investments. Click here to Open NPS Account with Religare Online and Avail additional tax benefits.

Benefits:

– The National Pension System (NPS) gives the tax saving benefits as well as a long term retirement planning mechanism and an opportunity for investors to invest either in corporate debt or government debt or equity or a mix of both.

– The investor can also opt for an “Auto-Choice” in which case the fund will automatically allocate money based on a life cycle matrix.

– This additional choice is a major advantage of this scheme as it enables the person according to his age to select the investment plan that is most suitable.

2. How to plan your taxes through Equity Linked Savings Schemes (ELSS)? What is ELSS all about?

Equity Linked Savings Scheme (ELSS) is an efficient tax saving scheme which has a locking period of 3 years which means the specified units cannot be redeemed till the end of 3 years from the date of purchase.

No additional KYC formalities are required for ELSS. Normal mutual fund KYC is sufficient to invest in ELSS scheme.

Click here to invest in ELSS Mutual Fund with Religare Online and avail additional tax benefits.

Benefits of investing in an ELSS:

– The investor gets a tax benefit under Section 80CCD (1) up to a limit of Rs.150,000/- on ELSS investment. Of course, this will be clubbed with other investments like LIC premium, PF contribution, principal repayment of a home loan, long term FDs and the overall investments will be subject to a limit of Rs. 150,000/.

– Investing in ELSS is also a good source of stable long term returns and substantially ehances effective yield due to the tax advantages

3. How to plan your taxes through Medical Health Insurance? What is Medical insurance all about?

Medical insurance is a non-life cover which not only covers you against the cost of hospitalization and other related expenses but also appoints a nurse at home for home care, convalescence can be covered under medical insurance subject to prescribed limits.

Now-a-days most of the insurance companies directly pay the hospital for the entire medical bill amount.

Click here to Open Health Insurance Account with Religare Online and Avail additional tax benefits.

How and for whom can you buy medical insurance?

Under the Income Tax Act, you are eligible for tax benefit for medical insurance bought for yourself, on behalf of your spouse and dependent children as well as your dependent parents.

There are two types of policies i.e. stand-alone and floater policy. Floater one is more economical out of these two. Now, we can buy medical insurance online on a declaration of a good health. But in case of persons above 45 years of age, medical test is a must.

Tax benefits of medical insurance:

– Contributions towards recognized medical insurance policies are eligible for additional tax benefits under Section 80D of the Income Tax Act. This benefit is over and above your other sections like Section 80CCD. Under the Income Tax Act amendments made in Budget 2015-16, medical insurance premium up to Rs. 25,000/- per year paid for the life of the insured and his spouse and children is eligible for full tax deduction.

– In addition, there is a supplementary tax break of Rs.30,000/- per year for medical Insurance premium paid on behalf of your parents who are senior citizens. Thus you are eligible to claim up to a maximum of Rs.55,000 as premium towards medical insurance.www.taxxcel.com

Tax payers can now e-verify income tax returns using bank, demat account details

“Currently an Income-Tax Return or ITR can be e-verified by using internet banking, email or an Aadhaar number- generated One Time Password (OTP).”

In a bid make e-verification of tax returns simpler, the Income-Tax Department has included bank account and demat account details among the modes that can be used to generate code to e-verify ITRs.

Currently an Income-Tax Return or ITR can be e-verified by using internet banking, email or an Aadhaar number- generated One Time Password (OTP).

To these, two more modes of bank account and share demat account have been added for generating an electronic verification code (EVC) that is used to submit annual ITRs.

The measures are intended towards ending the practice of sending paper acknowledgement of ITRs to CPC, Bengaluru.

The Central Board of Direct Taxes (CBDT) has added two additional modes for generation of electronic verification code (EVC) for e-verification of ITRs.

The efiling website of the I-T department would now provide a facility to pre-validate bank account details. The assessee will have to provide bank account number, IFSC code, email id, and mobile number and these details will be validated against the details of the tax payer registered with the bank.

“Generated EVC will be sent by e-filing portal to taxpayers’s email id and or mobile number verified from bank,” a CBDT notification said.

The list of banks which will participate in this facility would be provided on the efiling website.

As regards generation of EVC using Demat account details, the CBDT said the assess would have to provide demat account number, email id and mobile number. This details, along with Permanent Account Number (PAN), would be validated against the information with depository (CDSL/NSDL).

“Generated EVC will be sent by e-filing portal to email id and or mobile number verified from CDSL or NSDL,” CBDT said.

After the EVC is generated, it can be put in the ITR form for final submission.

“Despite of all the efforts of the government to go green and paperless, the mandate of providing Aadhaar Number at the time of filing the return of income prevented e-filing from becoming a completely paperless process for those who did not have an Aadhar Card,” Nangia & Co Executive Director Neha Malhotra said.

Last year the tax department launched its ambitious One Time Password (OTP) based e-filing verification system for taxpayers using the Aadhaar number.

According to experts, bank account detail based EVC generation is a more reasonable mode for e-verification. It would be now easier for small tax payers as mostly all of them have bank accounts, even if they do not have Aadhaar numbers.

“With Jan Dhan Yojna, even the small taxpayers have a bank account and thus can complete easily complete the return filing process,” www.taxxcel.com

Have You responded to income tax notice u/s 245?

There are a lot of taxpayers who are receiving intimation from the Income Tax Department under Section 245 of the Income Tax Act but they are often not able to understand the situation and what this actually means for them. In many cases the mere mention of some intimation from the tax department is enough to scare the taxpayer but this kind of step might require some quick action from the side of the investor and they have to pay attention to the details. There are now options to ensure that the right effect is given to the various conditions and the taxpayer does not end up suffering at the end of the day. Here is a look at the entire situation and how a taxpayer can respond to this kind of situation. Meaning of intimation The Income Tax Act allows the tax authorities to set off a refund that has to be paid by the tax department against some previous outstanding tax amount that the taxpayer has to be paid. However this does not mean that any adjustment can be done without the knowledge of the taxpayer. Under Section 245 this kind of adjustment can be done only after a proper notice is given to the taxpayer and they are given an opportunity of correcting any mistake that might have occurred in the raising of the demand. The intimation that is being received by the taxpayers is due to this condition wherein they are being informed that their current years refund is being adjusted against some past outstanding. First step The moment such intimation is received from the tax department the taxpayer has to first check the details of the previous outstanding tax demand against which the refund is being adjusted. This is significant because of the fact that it is not necessary that every past demand raised is correct. There have been a lot of cases wherein the demand raised have not been proper and hence the taxpayer does not have to pay this amount so this has to be taken care of. This will require some work on the part of the taxpayer because the previous demand can stretch back several years and to get the exact situation will require that the old details be looked at once again. Time period The intimation under Section 245 will also mention the time period during which the taxpayer has to respond after which if there is no reply then the adjustment would be completed. This time period is important and the earlier the reply is filed by the tax payer the better it is. In the online filing website the taxpayer will have to log in and under the e file segment they will need to go to the response to outstanding tax demand section. Here one can view the details of the demand and the reply can also be submitted here which can be under three heads. This would be that the demand is correct or it can be demand is partially correct and the third head is you disagree with the demand. There will be a way to reply to the outstanding demand but if this facility is not present then the meaning of the step is that the demand has already been finalised by the assessing officer. Since there is a specific time period that is allowed for the reply of the tax payer it is important for them to adhere to this as the facility for replying could then close which would end the matter. This is also the reason why every intimation needs to be seen immediately and then action taken in the matter.

Tax Department Issues Guidelines for E-Communication to Assessees

To ease communication with the Income-Tax department, the government has allowed tax payers to reply to notices using their registered email address.

The Income-Tax Department has issued detailed guidelines for using electronic communication, or emails, for paperless assessment proceedings.

As per the guidelines, the department will primarily issue notices or other communication through the email address provided by the assessee or the one available in the last income-tax return furnished.

In case of a company, its email address as available on the website of Ministry of Corporate Affairs or the one made available by the firm will be the primary address.

The assessee may furnish a letter to the Assessing Officer (AO) providing any other email address for the purpose of issuing email.

“Any email, in response to the notice issued by the AO, received from the primary email address of the assessee shall be considered as a valid response to the notice,” the guidelines said.

The guidelines will apply in respect of select non-corporate assessees as part of the pilot project on paperless assessment proceedings and can be extended to other assessees or proceedings as may be notified by the Board subsequently.

Commenting on the move, Vikas Vasal, Partner – Tax, KPMG said the government has clarified the procedural aspects of usage of electronic communication regarding paperless assessment proceedings.

“Gradually, the aim is to move most of the communication to the electronic format. Once done, it would save time and effort both of the tax payers and the tax department,” he said.

Also, such a move would bring in more transparency and consistency in tax positions. “A number of tax simplification measures have been announced by the government recently and few more are expected to form part of the forthcoming Union Budget,” he added.

The email address to be used by the AO for communication shall be his official designation-based email address under the domain @incometax.gov.in. “The AO shall issue all statutory notices/questionnaires including notice u/s 143(2) and notice u/s 142 (1) of the Income Tax Act 1961 from his designation email address to the assessee’s email address,” it said. www.taxxcel.com

Income Tax Department Lists Norms for Faster Tax Refunds

The CBDT has issued guidelines for expeditious tax refund of up to Rs. 5,000 in cases where the department wants to adjust the refund with a pending demand, which has been contested by the assessee.

The guidelines would help further streamline the process of refunds. Between mid-April and January, the Income Tax department has issued a record Rs. 65,000 crore worth refunds.

“Where the tax payer has contested the demand, Central Processing Centre (CPC) would issue a reminder to the Assessing Officers about the contention of the tax payer, asking them to either confirm or make appropriate changes, to the demand within 30 days,” the Central Board of Direct Taxes (CBDT) said in an office memorandum.

The CBDT, further, said where the tax demand has not been contested by the assessee, the CPC would issue a reminder to the taxpayer asking to either agree or disagree with the demand and submit response on the e-filing portal within 30 days.

The office memorandum relates to cases where a notice has been served under Section 245 of the I-T Act to the assesse wherein the I-T Department wants to adjust refund due to an assessee against a demand pertaining to an earlier assessment year.

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Last month, CBDT had directed CPC-Bengaluru and field units that refunds up to Rs. 5,000, and refunds in cases where outstanding arrears are up to Rs. 5,000 may be issued without any adjustment of outstanding arrears. The move was aimed at expediting the process of issue of small refunds.

Commenting on the guidelines, KPMG in India Tax (Partner) Vikas Vasal said: “Adjustment of refunds against outstanding demands, has been a matter of concern for the tax payers for some time now. The recent instructions regarding refund process are a move in the right direction”.

The CBDT said in case where assessee had contested the tax demand, and there is no response from AO to the reminder sent by CPC, then the CPC would issue the refund without any adjustment.

“The responsibility on non-adjustment of refund against outstanding arrears would lie with the AO,” the CBDT said.

With regard to cases where there is no response from tax payer to the reminder notice from CPC, the CPC would adjust the demand along with applicable interest, against the refund due and issue the balance refund, if any, to the tax payer.

The committee formed to simplify I-T Act under Justice R V Easwar had also recommended that the tax refund process should be streamlined and the procedural issues be ironed out to avoid unnecessary litigation.

“It is expected that suitable changes are likely to be made in the forthcoming Union Budget to further smoothen the refund process,” Vasal added. www.taxxcel.com

Eight Types of Income on Which You Don’t Have to Pay Taxes

There are certain incomes that are exempt from income tax. If you get your income from these sources, your tax liability will be zero.

1) Dividend from shares and equity mutual fund: If you have invested in the shares of an Indian company, any dividend that you receive is not liable to tax under Section 10 (34) of Income Tax Act. The reason being the company has already paid tax from its own profit. Similarly, dividend income from an equity mutual fund is also exempt from tax. However, if you being an Indian resident have received dividend from a foreign company, it will be taxable. In case the dividend is taxed both in the foreign country and in India, you can claim taxation relief either as per the provisions of Double Taxation Avoidance Agreement (if India has such agreement with that country) or can claim relief as per Section 91, if no such agreement exists.

2) Proceeds received on maturity of life insurance policies: Any sum received under a life insurance policy (including bonus if any) is exempt from tax provided the premium paid to actual capital sum assured does not exceed the prescribed thresholds provided by Income Tax Act.

“For policies issued till March 2012, the premium shouldn’t be more than 20 per cent of the actual sum assured. For policies issued from April 1, 2012, the percentage was reduced to 10 per cent of actual sum assured,” says Ms Neha of Nangia & Co. The tax exemption is applicable for endowment policies only, she adds.

However, if the above conditions are not met, the individual will be liable to pay a tax deducted at source (TDS) at the rate of 2 per cent, if the amount received during the financial year is more than Rs. 1 lakh.
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3) Scholarship or grant received: If you have received any scholarship or grant as a student to meet your education cost, it is totally exempted from tax.

4) Interest received from government notified bonds: Interest income that you earn from certain bonds notified by government is exempt from tax. Recently, the government allowed certain public sector companies to issue such tax-free bonds to raise money for infrastructure projects. The interest that you will receive on these bonds will be tax-exempt but if you make any gains by selling these bonds on exchange before maturity, you will have to pay tax on the capital gains.

5) Agriculture income: As per Section 10 (1) of Income Tax Act, agriculture income in terms of rent or from any agriculture produce is exempt from tax. However, the agriculture income will have to be added to one’s total income for the determination of the income-tax slab of the individual, says Neha Malhotra, executive director of taxation at Nangia & Co, a tax advisory firm.

6) Share of profit from partnership firm: If you are a partner in a partnership firm, you will not have to pay any tax on your share of profits. “The share of profit is exempt for the individual partner, if received from a partnership firm which has been subjected to tax on the profits at the partnership firm level,” says Parizad Sirwalla National Head-Global Mobility Services-Tax, KPMG.

7) Interest on Non Resident External (NRE) account: “Any interest received by an individual is exempt from tax until such time the individual is a person resident outside India (PROI) as per Foreign Exchange Management Act, 1999 (FEMA),” says (USE Mr or Ms) Parizad of KPMG.

8) Leave Travel concession (LTA): If you receive LTA as part of your salary is exempted from income tax unlike house rent allowance (HRA) against which you can claim deduction. You can claim exemption on the cost of domestic travel incurred under Section 10 (5) of Income Tax Act provided you give the proofs. You can claim LTA twice in a block of four years. www.taxxcel.com

Waiting for Income Tax refund? Here is some Good News

In a taxpayer-friendly move, the government has directed income tax officials to issue refunds in cases where outstanding arrears are up to Rs 5,000 without any adjustment.

In an initiative to reduce taxpayer grievances and enhance taxpayer satisfaction, the Central Board of Direct Taxes had issued instructions to the Central Processing Centre (CPC), Bengaluru and the field officers in December to issue refunds of amounts less than Rs 50,000 expeditiously.

“In order to further expedite the process of issue of small refunds, CBDT has also directed CPC-Bengaluru and the field units that refunds up to Rs 5,000, and refunds in cases where outstanding arrears are up to Rs 5,000 may be issued without any adjustment of outstanding arrears,” said CBDT, the apex policymaking body of the Income Tax Department.

As a result of the special drive to issue smaller refunds in December, as many as 18,28,627 refunds below Rs 50,000, involving a sum of Rs 1,793 crore, have been issued between December 1, 2015 and January 10, 2016, CBDT said.

These refunds relate to assessment years 2013-14 to 2015-16.

In another statement, CBDT said reducing litigation with the taxpayers has been a key focus area for the Income Tax Department.taxrefund

“Several initiatives have been taken by the Central Board of Direct Taxes in the last three months up to December 2015 to significantly reduce disputes and provide relief to taxpayers facing long standing litigation,” it said.

The significant steps taken by CBDT include issue of a circular revising the monetary limits for filing of appeals by the department with the objective of reducing litigation as a part of its initiatives to reduce grievances of the taxpayers.

CBDT has also directed principal chief commissioners to constitute a collegium of chief commissioners of income tax to consider withdrawal of appeals filed by the department in cases involving tax effect above certain monetary limit.

www.taxxcel.com

Tax planning: Invest only after evaluating the options

The goal of tax planning is to arrange your financial affairs in a manner that it minimizes the impact of taxes. This should also play a major role in the financial planning and investment decisions to meet the long term financial needs of an individual. In a country like India where we do not have a social security, it is also important to secure the future of the family as a part of financial planning. With intent to promote savings the government provides various tax benefit schemes on different financial planning tools. It is extremely important for an individual to understand these benefits and align their long term financial needs in a manner which maximizes the tax benefits.

How to plan for tax savings.

Tax planning needs to be “planned” and have to be done with extreme care, after a detailed research and understanding of the options on offer. However, most taxpayers tend to defer this decision to March and then rush into putting their money into anything and everything with the sole objective of saving tax for the year. As a result, the returns are likely to be not commensurate to the amount invested and might not serve financial planning needs.It is therefore of utmost importance that one must do his planning in a timely manner with focus on products that can result in good returns as well as help in saving tax . Also, the product must be chosen based on their long term merits and in such a manner that multiple life goals can be fulfilled.

Tax planning opportunities-

Pension / Retirement Plans.

Most insurance companies offer pension plans which provide option to save when you are earning and thereafter receive pension/ annuity based on your future needs. One can avail benefit of up to Rs. 1.5 lakh on the premium paid towards a pension plan under Section 80CCC. On maturity, one-third of the maturity amount withdrawn is tax-free. Based on risk appetite, one can decide either for a unit-linked or a traditional plan and opt for pension after a defined time frame.

Life Insurance.

One of the most efficient tax planning tools is life insurance which provide financial security and good returns as well as offer tax saving benefits. There are a variety of products available and one can opt for them based on individual