New Delhi: Seeking to calm investor jitters, Finance Minister Arun Jaitley on Thursday offered tax relief to FIIs by exempting some of their income from MAT and announced that an "extremely simplified" income tax return form will soon replace the controversial 14-page ITR that sought details of all bank accounts and foreign trips.
Replying to the debate on the Finance Bill, 2015, in Lok Sabha, he said Prime Minister's social security schemes will be exempt from service tax and also tinkered with indirect tax rates on raw silk, iron ore and rubber.
With funds fleeing India as the row over 20 percent minimum alternate tax (MAT) on capital gains they made in past three years escalated, Jaitley offered relief by exempting income foreign firms earned from securities transactions and interest, royalties and fees for technical service from MAT.
The exemption would apply only in those cases where the normal tax rate is below 18.5 percent.
He, however, offered no relief retrospectively as has been demanded by foreign portfolio investors.
The rules for the application of MAT for real estate investment trusts were also eased.
Later, the Finance Bill was passed by voice vote, bringing to close the three-stage budget process in the House.
On the indirect tax side, export tax on low-grade iron ore was cut to 10 percent from 30 percent, in a bid to boost shipments of the steelmaking raw material from Goa.
The new duty structure will be applicable from June 1, Jaitley said.
Referring to the controversial new ITR form, he said an "extremely simplified" income tax return form will soon be brought.
"I am having the entire matter reviewed and very soon you will hear an extremely simplified procedure coming for us," he said. "Recently, a controversy did come up. There is an old income tax form of 12 pages which was made thirteen-and-half pages. I was out of the country when this was done, I had it stopped."
Buying peace with RBI, Jaitley dropped plans for the time being to strip the central bank of powers to regulate government bonds and give it to an independent agency.
Jaitley sought the cooperation of the opposition for reforms measures like Land Acquisition Bill saying the country needs to take advantage of the global situation to push growth.
"If we can put our house in order and put an end to political obstructionism, if states can come together, that will add to national growth rate," he said.
He exempted service tax on life insurance business provided under Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Jan Dhan Yojana as well as on general insurance business under the Pradhan Mantri Suraksha Bima Yojana and the services provided by contribution collecting agencies in the Atal Pension Yojana.
He raised the basic customs duty on natural rubber from 20 per cent or Rs 30 per kg, whichever is lower, to 25 per cent or Rs 30 a kg, which ever is lower.
Stating that MAT on FIIs has been done away with from April 1, 2015, the Finance Minister said the issue regarding levy of the tax in past cases was now pending in Supreme Court.
"Yesterday, the matter was mentioned. The Supreme Court has said they will fix up after the summer vacation some date of hearing and that is not an issue I have announced today," he said.
With a view to provide a level playing field to domestic defence manufacturers in private sector viz-a-viz public sector, he withdrew the excise duty exemption available to defence PSUs and ordinance factory boards.
"I propose to withdraw the exemption of additional duty of customs, CVD and SAD in certain cases. These imports will however continue to remain exempt from basic customs duty," he said adding direct import of such goods by Central and state governments will remain exempt from customs duty.
The changes will become effective from June 1, 2015.
The new ITR had been criticised by the industry and MPs as they felt it impinged on the individual's privacy by seeking details of all bank accounts and foreign travel.
As it stands, the new ITR forms, including the ITR-1 and ITR-2, require an assessee to furnish the number of bank accounts held by the individual "at any time (including opened/closed) during the previous year" with the last balance in the account on March 31 of the just-concluded fiscal.
The assessee will also have to furnish the name of the bank, account numbers, their address, IFSC code and any possible joint account holder.
Jaitley said that the government will be organising Jan Dhan scheme like camps to provide PAN cards to everyone as it would also help in combating the menace of black money.
The government has proposed the new law on black money to deal with unaccounted overseas assets, he said, adding "it is not intended to harass assessees."
The Finance Minister also said that many reforms and expenditure proposals are in the pipeline, which will show impact.
"If we can put our house in order and put an end to political obstructionism, if states can come together, that will add to national growth rate," he said.
He said the status quo with regard to the land bill was responsible for the current plight of farmers and landless labour who are dependent on the farming activities.
Land is required to provide affordable housing to farmers, irrigation as well jobs to landless labour, he said.
In order to address the cash flow problems of the entities involved in real estate, Jaitley exempted MAT on gains and losses arising out of exchange of shares with the units of business trusts in REITs (Real Estate Investment Trusts) and SPVs (Special Purpose Vehicles).
"MAT will only arise on actual transfer of such units," he added.
Later clarifying on the issues concerning levy of MAT on FIIs, Revenue Secretary Shaktikanta Das said, "the Rs 40,000 crore worth FII tax demands, as reported, was an over statement and the position on DTAA was the stated position of the government, hence no clarification was required.
The government, Das said, was ready for an early hearing in the case pending in the Supreme Court so that the matter is resolved soon.
Among other things, Jaitley said, the controversial phrase "at any time" in the clause relating to taxation of foreign companies, was being dropped.
The Finance Bill has proposed that a foreign company would be liable to pay tax in India if its effective place of management was in India during 'any time' in the previous year.
"Taking into account the concerns raised, I propose to drop the phrase 'at anytime' so that no ambiguity remains. Thus a foreign company will be treated as a company resident in India for a previous year if its place of effective management is in India in that previous year," he added.
Commenting on the move, Suresh Swamy, Partner, PwC India, said, "This is a welcome clarification especially for debt funds, private equity and venture capital funds and other foreign companies with that type of income."
In order to attract investments, Jaitley also announced relaxation in norms for offshore funds like sovereign wealth funds (SWFs), government funds and pensions funds wanting to invest in India as they are regulated in their home countries.
"...Conditions regarding minimum number of investors, threshold of participation of interest of members, etc will not apply in the case of investment set up by foreign governments, or its central banks or SWF subject to fulfilment of (certain) conditions," he said.
Referring to taxation issues being faced by cooperative sugar mills especially in states of Maharashtra and Bihar, Jaitley said the amount paid by the mills to cane growers would be treated as business income even if it is above the price fixed by the central government.
"The amount paid as price of sugarcane by cooperative societies engaged in the manufacture of sugar at a price which is fixed and approved by the government shall be allowed at a deduction in computing the business income of the sugar cooperatives. The proposed amendment will resolve this tax dispute prospectively," the Minister said.
In order to boost the silk industry, he reduced the customs duty on raw silk from 15 percent to 10 percent. This, he added, will also address the problem of duty inversion in silk yarn and fabric.
To protect the domestic rubber industry, Jaitley raised the basic customs duty on natural rubber from 20 percent to 25 percent.
The Minister further said that various tax incentives to boost output in Bihar and West Bengal would be incorporated in the Finance Bill.
"The prime minister's concern is that some of the states must be helped in order to grow and whatever packages we have announced for the states of Andhra Pradesh, will be applicable to the states of Bihar and West Bengal...Therefore those are being incorporated in the Finance Bill itself," he said.
