New rule to avoid double taxation

The Central Board of Direct Taxes on April 18th, 2016 released a draft stating that the entities can seek credit for the tax they paid abroad. The officials said that the entities that pay their taxes in any foreign country, inclusive of the countries with which India signed the Double Taxation Avoidance Agreement (DTAA) can avail tax credits. But this provision is not available in the Income tax Act. The taxpayers can avail credits for the tax they pay abroad by considering the principal amount of tax and the service charges. And the credits do not include the fine amount or the interest amount. This relieves the Indian companies who receive foreign income, because they pay tax in both countries.
Former advisor to the Finance Minister, Prathasarathi Shome said that the new rule by the Tax Administration Reform Commission (TARC) is an effective rule for many companies that face the double taxation. He also advised the government that they should differentiate the tax jurisdictions with FTC guidelines.
The officials from the CBDT said that they will calculate the threshold amount of the credit by considering a particular territory or a specific country. The FTC provides proper guidance on claiming the credits because in the absence of the FTC both the tax department officials and the taxpayers faced many difficulties regarding credits. The entities that claim for tax should follow certain norms, like an online acknowledgement of the tax paid, certificate from the tax department and a declaration certificate stating that the amount the entity claims is not under any kind of disputes.

Service tax litigations and revenue implications

There are several pending cases in the Indian courts over service tax. There are a total of 75,314 cases pending with the department of revenue, various courts and the revenue implications stand at INR 1,51,414 crores. The numbers of such cases have increased by 66 percent in the past few years and the revenue implications are as high as 143 percent. These figures were compiled by the comptroller and auditor general of India (CAG). The revenue cannot be retrieved until the cases are done in the court.

Certain taxes are heavily opposed by industries such as transportation over vessels as they have already paid customs duty this is an issue of double taxation Such high amount of revenue locked up is no good news for the government. GST bill is expected to solve these issues. GST is expected to resolve ambiguities around taxation as it is as a simple tax structure with very few exemptions.

GST will bring more transparency in taxation and the government can easily get hold of tax defaulters effectively. Double taxation can also be avoided by GST which will boost industrial growth in India. It will also bring down the market price of products and boosts consumerism. GST model of taxation is currently used in around 40 countries in the world and has proved to be quite successful and many other countries intend to follow. GST is also expected to bring down tax deficit in India.

Tax payment and hidden costs

Paying taxes is burdensome issue but with the increase in complexity of tax structure calculating tax is also a headache to the American citizens. The amount spent to pay taxes – apart from taxes paid to the government, is the expenditure for tax preparation process. The expenditure for tax preparation process is of two categories: accounting costs and economic costs. The tax payer’s resources, time and effort come under accounting costs. The total time spent to complete tax procedures is 6 billion man hours and amount spent is close to $ 200 billion. The cost covers the money spent for hiring a tax professional. Tax payment in itself a thriving industry, pay taxes using uptra.

Economic costs include petitioning federal, state governments for tax advantages by tax firms. Adding this to the accounting cost will bring the total expenditure to nearly 20 percent of the taxes paid to the treasury. The citizens are in much need of flat tax a direct income dependent tax rate. There are totally 40 countries in the world which follow direct tax and the mode has been quite successful. This will boost the economy avoid unnecessary deductions and credits. Tax deductions are more or less used as vote obtaining methods by modern day politicians. A flat tax model will also bring more transparency and gets rid of hidden compliance and double taxation.

Advance tax and Tax on interest amount

Tax on interest:
Money gained as interest from savings bank account, post office or co-operative society is subject to tax. The amount that was saved or deposited will not be exempt from tax. The interest gained will be considered as “income from other sources”. One can claim a deduction on interest amount for up to INR 10,000 for one financial year. The amount exceeding 10,000 will be subject to tax according to income tax slab rate. If an individual’s income exceeds 1 crore a surcharge of 12 percent will be imposed and further 3 percent education cess will be levied. In the financial year 2017 the surcharge is expected to rise to 15 percent from 12 percent.
Advance tax:
It is the tax that an individual needs to pay on income throughout the year as the person earns income. Advance tax is applicable for those who pay more than INR 10,000 tax in a financial year. Salaried class need not worry about advance tax as they have tax deducted at source (TDS). Even interest earned from savings cooperative and post office accounts will be subject to advance tax if the interest is more than INR 50,000. Senior citizens without any income from business or profession need not pay advance tax. Freelancers end up paying advance tax most of the time as they have less or no TDS. In such case when the tax that has to be paid exceeds INR 10,000 then the person needs to pay advance tax. The total taxable amount is calculated by the freelancer based on his expenses and amount received or can go for “presumptive tax” if the earning is less than INR 50 lakh.

Economic survey against increasing income tax exemption limits

The economic survey of 2015-16 is against raising tax exemption limit. India has the lowest number of tax payers in the world with only 5.5 percent paying taxes. The desirable amount of taxpayers should be around 23 percent. To achieve this figure the government should refrain from increasing the tax exemption limit. Study on income data points to the fact that the exemption limit was raised rapidly compared to the income growth. This has put a lot of earning citizens out of the taxpaying limit The survey also suggested that the government should increase property tax.

These steps are necessary to increase the revenue gained by government. The survey stressed the proper utilization of public resources; this will encourage country men to shell out their tax Subsidies should be given to citizens who genuinely require it, instead of wasting it on financially capable public. This will reduce the burden on government in the name of subsidy. Too many tax exemptions by the government over the years has caused imbalance towards the rich private sector. The taxation should be uniform regardless of the source of income- like agriculture, real estate or industries.  In India income gained from agricultural sector is not taxable.

This exemption has led to serious tax evasion; recently filed RTI application brought into light the trillions of money is laundered through agriculture. Money gained through other sources is declared as agricultural income to evade taxes. In an overall aspect the government needs to plug-in holes where it is losing money that has to reach its pocket.

The Income tax departments introduces “e-filing vault” for higher security

Income tax department has introduced E-filing vault to increase security to the E-filing account. This additional security keeps the E-filing account from misuse and fraudulent activity. The higher security option can be set-up by the taxpayer after logging into the E-filing account and chose the “E-filing vault higher security” on the profile page. This layer of security can be invoked by multiple methods, log-in through net banking or Aadhar linkage to generate a onetime password (OTP), log in using a digital signature certificate (DSC).

E-filing vault facility prevents others from entering into the logging-in even if the person is aware of Id and password. The facility acts as a dual degree of authorization and therefore offers a higher security compared to simple ID and password. Resetting password is also done in a secure manner – linking to Aadhar for OTP or login through net banking or DSC.

Digital signature certificate is obtained from the certifying authority (CA). DSC is the electronic equivalent of paper certificates. Certifying authority is a person who is given license by the Indian Government to issue DSC.  These certificates have validity for one or two years. Additional security options such as bank account validation or Demat account validation will be available to increase security during login and resetting of passwords. The Income Tax department officials have issued warnings to taxpayers regarding phishing and fraudulent mails which are used to gather sensitive details such as IDs and passwords.

Government releases Tax evaders name list

The government in the year 2015 released 67 names of the tax defaulters list. These names were released in 3 installments under the “name and shame policy. The source of income for majority of the individuals and entities in the list is through jewelry, diamonds and gold.

The first list released was released in March 2015 with 18 names. The total amount these members owe to the government is 500 crore. The second list was released month later i.e. April 2015 with 31 names. The tax skimmed by these defaulters summed up to 1500 crore. The final list was released in December 2015 with 18 names and the due amount that has to be paid is 1,150 crore. This list is compiled by tax department and released by the finance ministry. The list was published in leading national newspapers along with details regarding source of income, PAN number, and last known address and assessment years.

The tax department has issued the notice to the defaulters to pay their taxes immediately. The department also welcomes public to come with any information regarding the defaulters. The public notice also points to the fact that the individuals or entities in the defaulters list are not “traceable” and do not have enough assets listed for recovery. Gujarat stands as the state with highest number of tax evaders. In the list off 67 24 are from Gujarat, followed by Gujarat Maharashtra and Telangana have 15 defaulters each. The first list for the year 2016 is released with 20 tax defaulter off which 3 are from Gujarat.