 "Rich tax retained due to revenue considerations: R K Tewari")
Central Board of Direct Taxes (CBDT) Chairman R K Tewari says the Budget proposal of imposing capital gains tax on foreign portfolio funds will lend certainty to the tax regime in this segment. In an interview with Indivjal Dhasmana, he says whether some fund houses in countries with which India has unfavourable capital gains tax clauses will gain or lose isn't the primary aspect; what is important is the proposal will reduce disputes in this area and encourage these funds to operate from India. Edited excerpts:
There is confusion over long-term capital gains tax on debt mutual funds being raised from 10 per cent to 20 per cent in Budget 2014-15. The ministry has said it will address the issue of retrospective effect. How will you do this?
We have received representations from the public in this regard. These say there have been transactions under these schemes before the Budget was presented. These people did not know there would be higher liability on them. We are considering these requests. These will be settled through an amendment in the Finance Bill, not through a circular. We will consider from which date the higher rates will be applicable.
We are yet to decide on this issue.
The Budget has proposed capital gains tax on foreign fund houses. This will increase tax liability on the funds based in countries with which we do not have favourable capital gains tax clauses. Under the current system, these could show their income as 'business income' and claim treaty benefits.
That is not an issue. The real issue was earlier, there was uncertainty, because of which disputes were on the rise. The disputes relate to whether these will draw capital gains tax or tax on the business income. Now, there is clarity that these foreign portfolio investors will draw capital gains tax for transaction in securities. This will help these fund houses operate from India, which will increase both economic activity and employment generation.
In the 2013-14 Budget, the finance ministry had categorically stated the so-called rich tax, or the surcharge of 10 per cent on those earning more than Rs 1 crore a year, was for a year alone. Why was this retained in Budget 2014-15?
It was retained because of revenue considerations. We gave away Rs 22,200 crore on increasing the threshold limit for exemption and deduction rates on the personal income tax side. That is why you will see a lower projection of personal income tax collections - Rs 2.84 lakh crore, compared with Rs 3.06 lakh crore in the interim Budget. However, the corporate income tax collection estimate was retained at Rs 4.51 lakh crore.
Will the committee for fresh cases arising out of retrospective amendments to the Income Tax Act have representatives from outside the CBDT?
No. It will be an oversight committee of the CBDT. All fresh cases arising out of deals before 2012 will be scrutinised by this committee, before any action is taken. For cases after 2012, the law is clear.
There is confusion over long-term capital gains tax on debt mutual funds being raised from 10 per cent to 20 per cent in Budget 2014-15. The ministry has said it will address the issue of retrospective effect. How will you do this?
We have received representations from the public in this regard. These say there have been transactions under these schemes before the Budget was presented. These people did not know there would be higher liability on them. We are considering these requests. These will be settled through an amendment in the Finance Bill, not through a circular. We will consider from which date the higher rates will be applicable.
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Will the issue of retrospective effect be addressed for investments in or redemptions from debt mutual funds prior to the presentation of the Budget?
We are yet to decide on this issue.
The Budget has proposed capital gains tax on foreign fund houses. This will increase tax liability on the funds based in countries with which we do not have favourable capital gains tax clauses. Under the current system, these could show their income as 'business income' and claim treaty benefits.
That is not an issue. The real issue was earlier, there was uncertainty, because of which disputes were on the rise. The disputes relate to whether these will draw capital gains tax or tax on the business income. Now, there is clarity that these foreign portfolio investors will draw capital gains tax for transaction in securities. This will help these fund houses operate from India, which will increase both economic activity and employment generation.
In the 2013-14 Budget, the finance ministry had categorically stated the so-called rich tax, or the surcharge of 10 per cent on those earning more than Rs 1 crore a year, was for a year alone. Why was this retained in Budget 2014-15?
It was retained because of revenue considerations. We gave away Rs 22,200 crore on increasing the threshold limit for exemption and deduction rates on the personal income tax side. That is why you will see a lower projection of personal income tax collections - Rs 2.84 lakh crore, compared with Rs 3.06 lakh crore in the interim Budget. However, the corporate income tax collection estimate was retained at Rs 4.51 lakh crore.
Will the committee for fresh cases arising out of retrospective amendments to the Income Tax Act have representatives from outside the CBDT?
No. It will be an oversight committee of the CBDT. All fresh cases arising out of deals before 2012 will be scrutinised by this committee, before any action is taken. For cases after 2012, the law is clear.