BCIC calls for clarity on taxation

In its memorandum for Budget 2006-07, the Bangalore Chamber of Industry and Commerce (BCIC) has urged the Centre to address some critical tax issues. These include the definition of corporate tax, fringe benefit tax, international and non-residents taxation, personal taxation and capital gains.

In view of the time limit for realisation of export proceeds by STP units, BCIC has asked for a suitable amendment in the Act to allow tax benefits to STP units which have realised and repatriated export proceeds to India within one year from the date of exports, or six months from the end of the financial year, whichever is later.

Further, on the depreciation rates of plant and machinery, BCIC has recommended that the finance minister restore the depreciation rate to 25 per cent from the present 15 per cent. This will help in capital formation for further investment in new plant and machinery.

To boost R&D activity in various sectors, BCIC has suggested that the time limit for approval of companies by the prescribed authority be "extended by another 10 years". Further, the provisions in the rules restricting companies to "exclusively" engage in R&D need to be relaxed. The industry body has sought suitable changes in the Income Tax Act to treat the Indian business process outsourcing (BPO) companies as independent service providers and not as an agent of a foreign principal company for the assessment of tax liability.

BCIC has noted that the Central Board of Direct Taxes (CBDT), in a circular issued during September last, had not categorically spelt out that payment of arm's length price to an ITeS BPO unit should extinguish the tax liability of the head office or a foreign entity.

BCIC has suggested that CBDT should clarify the payment of service fee to BPO companies at arms length by a foreign company will be exempt from payment of tax by the foreign company in India.

BCIC has also urged that a provision should be made that in cases where payment by the foreign entity to the Indian BPO was at arm's length price, there should be no need for the foreign entity to file tax returns in India. Referring to the fringe benefit tax vis-a-vis international taxation, BCIC wants the meaning of the term 'based in India' to be clearly defined. This should be based on one or more parameters like their physical presence in India, taxable presence in India (resident in India), rendering of services in India and being on the payroll of an Indian company.

On the levy of FBT on leave travel assistance, BCIC has also demanded that the finance minister should clarify if the exempt portion of LTA was liable to FBT or not.

On medical reimbursements, it was not clear if FBT would be applicable on the whole sum of Rs 15,000 as stipulated in CBTD's circular or the sum in excess of it will be liable to FBT.

In view of the proposed exempt-exempt-tax method ("EET") in place of exempt-exempt-exempt method ("EEE"), BCIC has recommended that it should be introduced in a phased manner.

As the investments made by assessees are a source of funding for many long-term infrastructure projects, the taxation of the matured amounts will impact the investment strategies of the assessees.

As the Finance Act 2005 has abolished standard deduction under section 16(i) available to salaried assessees, the BCIC has requested the finance minister to re-introduce the standard deduction. The removal of standard deduction was unfair to the assessees as they do not enjoy any benefits available to the business class.