24 June 2014 | Budget 2014 | Volume 3

News reports suggest that the Finance Minister of India, Arun Jaitley, will present the Union Budget 2014-15 on 10 July 2014. Millions of Indians are looking forward to this date as it will mark the unveiling of the first budget of the newly elected government. If the recent rail fare hike is anything to go by, it is likely that the Union Budget too will bring hard decisions to the fore. Will Narendra Modi bite the bullet and allow his Finance Minister to take decisions that are not necessarily popular but are the need of the hour for setting the Indian economy back on its path? Or will he play it safe and take a moderate approach? Time will tell. SKP, in the meantime, continues with its series of Wish Lists. We hope you find them interesting.

SKP Wish List

A. Foreign Portfolio Investors
  • Further defer the implementation of GAAR by at least one year.
  • Amend the Income Tax Act so that profit on disposal of investments by Foreign Portfolio Investors (FPIs) (and existing Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs)) are classified as Capital Gains alone and not as Business Income following the court rulings to avoid litigation.
  • Notify a separate Income Tax Return (ITR) Form for FPIs to simplify filing of Return of Income.
  • Simplify the procedure for obtaining a Permanent Account Number (PAN) in India. The requirement of submitting original copies of documents for verification should be reversed. Also, the various facilitation centres should follow a consistent approach in accepting supporting documents.
  • Reduce Securities Transaction Tax (STT) rates to encourage inflows in the capital markets.
  • Amend the Income Tax Act to replace the term "FII" with "FPI" to avoid ambiguity and pre-empt litigation.
  • The new FPI regime does not require Designated Depository Participants (DDPs) to deduct tax at source. Following the same, the requirement of Forms 15CA and 15CB should be done away with for FPIs or, in the alternative, the forms should be simplified to facilitate easier repatriation of funds.
  • At present, section 194LD requires a withholding of 5% tax on interest paid to FPIs on certain bonds and government securities. This provision has a limited life up to 1 June 2015. In order to provide certainty to investors, this section should be made applicable without any sunset clause. This would greatly boost investments in Indian debt instruments.
  • The uncertainty over the renegotiation of the India-Mauritius Double Taxation Avoidance Agreement has adversely affected the inflow of new foreign investors into the Indian stock markets. The government must end this impasse and conclude the renegotiation process amicably and fairly.
B. Corporate Taxation
  • The tax rates applicable to foreign companies must be brought at par with the rates applicable to domestic companies.
  • Concessional rate of tax (i.e. 15% as against 30%) for dividend received by Indian companies from foreign subsidiaries should be extended indefinitely. This concession was available for a period of three years, which ended on 31 March 2014.
  • Valuation of shares is highly litigated by the Indian transfer pricing authorities and it is also challenged by the regulatory authorities. As the new government is keen on liberalising foreign direct investment (FDI) guidelines to attract additional investments, it is imperative to have consistency in the methods followed for valuation of shares under the tax provisions and under the Exchange Control Regulations.
  • Currently, a taxpayer is not considered as a defaulter for non-deduction or short deduction of taxes in respect of payments made to an Indian resident, where the resident pays taxes on that income, files a tax return considering the said income, and furnishes a certificate from an accountant. Similar benefits should also be extended to payments made by a taxpayer to a non-resident subject to compliance of the conditions provided.
B. General Points
  • As per the current tax law, every company having a PAN is required to file a tax return in India. For administrative convenience, a threshold limit should be prescribed for foreign companies whereby they are not required to file the tax return in India with respect to incomes taxable at special rates (Royalty, Fees for Technical Services, etc.) and appropriate taxes have been withheld on the same.
  • Due to automation of various processes by the Indian revenue authorities, for the registration and issuance of various forms, the website of the tax authorities requires the company as well as the authorised signatory to have a PAN in India. This casts an onerous obligation on foreign authorised signatories. This requirement needs to be relaxed for foreign companies having foreign authorised signatories.
  • The retrospective amendments made to the statute in the last few years have adversely impacted FDI in India. In light of this, all amendments (to be made) should be effective prospectively.
  • A fair and quick system for granting credit for withholding tax (TDS) and issuing refunds should be introduced. At present, obtaining refunds can be a harrowing experience for taxpayers.
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