Even as the Direct Taxes Code (DTC) Bill will miss the target launch date of April 2012, Finance Minister Pranab Mukherjee has announced that many of its provisions will be introduced in the coming financial year. Advance pricing agreement, General Anti Avoidance Rule (GAAR), tax slab changes and reduction in securities transaction tax are among the DTC provisions that are set to be rolled out ahead of the full legislation.
“In a globalised economy with expanding cross-border production chains and growing trade within entities of the same group, an Advance Pricing Agreement (APA) can significantly bring down tax litigation and provide tax certainty to foreign investors,” Mukherjee said in his Budget speech.
The finance minister pointed out that though the provision for APA was included in the DTC Bill, 2010, he has brought forward its implementation by introducing it in the Finance Bill, 2012.
| DTC PROVISIONS INTRODUCED IN BUDGET: |
|
GAAR is the other big-ticket measure that will come into effect in 2012-13 ahead of DTC. The objective is to counter aggressive tax avoidance schemes, “while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel.”
The scheme is relevant in the backdrop of the Vodafone tax case, in which the income tax department recently lost a case on a tax demand of Rs 11,000 crore on the UK telecom company after it acquired Hutchison’s stake in what was Hutchison Essar.
Neeru Ahuja, Partner, Deloitte Haskins & Sells, said the proposal to introduce GAAR was on expected lines after the Supreme Court ruling in the Vodafone case. “Corporates would need to review fine print and processes prescribed to ensure that they don’t get caught on the wrong foot with the tax authorities on this one,” Ahuja said.
She added that one would need to see whether these rules would apply to prospective transactions only or can the authorities go back on this into the past as well.
While admitting that DTC will not be effective from 2012-13, the FM proposed to introduce the DTC rates for personal income tax. The exemption limit for the general category of individual taxpayers has been raised from Rs 1.8 lakh to Rs 2 lakh. This measure is expected to provide tax relief up to Rs 2,000 to taxpayers in this category.
In addition, the upper limit of the 20 per cent tax slab has now gone up from Rs 8 lakh to Rs 10 lakh a year. Last year, the Budget had hiked the exemption limit as a move towards DTC rates.
Moving towards the DTC regime, the Budget has also proposed to reduce the securities transaction tax by 20 per cent from 0.125 per cent to 0.1 per cent on cash delivery transactions. The aim is to bring down transaction costs in the capital markets.
Prashant Khatore, Tax Partner, Ernst & Young, said “it was a good idea to bring DTC provisions ahead of the full legislation”, as it was a progressive Bill. However, he pointed out that there has been much debate around GAAR and the precautions that must be kept in mind while introducing it.
The DTC draft Bill was introduced in Parliament in August 2010. The Report of the Parliamentary Standing Committee on it came on March 9, 2012. The government will examine the report and take steps for the enactment of DTC at the earliest, Mukherjee said on Friday.
