Tax department gets a ₹10,000 cr windfall from pact with MNCs

Source:, Jan 27, 2019

New Delhi: The income tax department has made a windfall gain of ₹10,000 crore from a scheme meant to avoid tax disputes, with multinational companies operating in India, a development that could give impetus to new schemes that will reduce litigation while adding to the government coffers.

The gain is from the advance pricing agreement (APA) programme that allows MNCs to negotiate how profit margins for India operations are to be calculated for tax purposes for five years in return for avoiding rigorous scrutiny of transaction details. Introduced in 2012, the scheme was tweaked in 2015 to allow such negotiated profit margins applicable for the past four years as well, allowing companies tax certainty for a total of nine years. Extending the agreed profit margin for past years has led to many MNCs revising their past year profit margins upwards, a government official said on condition of anonymity. Questioning the price at which MNCs transact with their units in India, called transfer price, has been an area of intense tax disputes at the beginning of this decade, which forced the government to roll out the APA scheme. Companies such as International Business Machines Corp. and Microsoft Corp. had in the past faced transfer pricing disputes in India. Read the rest of this entry »

India faces first fall in direct taxes in at least two decades: Report

Source: The Economic Times, Jan 24, 2019

India’s corporate and income tax collection for the current year is likely to fall for the first time in at least two decades, over half a dozen senior tax officials told Reuters, amid a sharp fall in economic growth and cut in corporate tax rates.

Prime Minister Narendra Modi’s government was targetting direct tax collection of 13.5 trillion rupees ($189 billion) for the year ending March 31 – a 17% increase over the prior fiscal year.

However, a sharp decline in demand has stung businesses, forcing companies to cut investment and jobs, denting tax collections and prompting the government to forecast 5% growth for this fiscal year – the slowest in 11 years.

The tax department had managed to collect only 7.3 trillion rupees as of Jan. 23, more than 5.5% below the amount collected by the same point last year, said a senior tax official.

After collecting taxes from companies in advance for the first three quarters, officials typically garner about 30-35% of annual direct taxes in the final three months, data from the past three years shows.

But eight senior tax officials interviewed by Reuters said despite their best efforts direct tax collections this financial year were likely to fall below the 11.5 trillion collected in 2018-19.

“Forget the target. This will be the first time that we’ll see a fall in direct tax collection ever,” said a tax official in New Delhi.

He estimates that direct tax collections for this year could end up roughly 10% below fiscal 2019.

Direct taxes typically account for about 80% of the government’s projections for annual revenue, and the shortfall may leave the government needing to boost borrowing to meet expenditure commitments.

The tax officials also say that a surprise cut in headline corporate tax rate last year aimed at wooing manufacturers and boosting investment in Asia’s third-biggest economy is another key reason behind the sluggish tax collections.

“We’ll be very happy if we can even breakeven with what we collected last year,” said another senior tax official in the financial capital Mumbai, the biggest tax generator, accounting for about a third of revenues from direct taxes. “But given the state of the economy, I’m not too hopeful.”

Govt mulls mediation to solve tax issues with companies

Source: The Economic Times, Jan 23, 2019

New Delhi: The government may adopt a mediation mechanism that will help companies determine their future tax liabilities and even settle disputes, said a person familiar with the development. The concept, which is widely prevalent overseas, is being discussed amid preparations for the February 1 budget, the person said.

Mediation will allow taxpayers to get a fix on how much they need to pay and avoid disputes. “This will bring down litigation substantially,” the person said.

The mediation process involves examining tax legislation and all relevant facts in detail. Neutral mediators, chosen from a panel, will negotiate and arrive at a settlement. The decision is binding on both sides.

The government could also look at expanding the Dispute Resolution Panel mechanism, which handles transfer pricing disputes, as an alternative, the person said.

Currently, the various Authorities for Advance Rulings take up issues from a technical standpoint and do not cover wider issues of law, hence the need for a broader framework. Besides, AAR decisions have not helped in containing litigation as most of these have been getting appealed both by taxpayers as well as the income tax department.

The Companies Act had in 2016 provided for a formal mediation process to settle disputes relating to the law but such a formulation is not present in the Income Tax Act.
The Direct Tax Task Force headed by former Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan had suggested a mechanism to ascertain tax liability.

Industry Pitched for Such a Mechanism
“It is an established practice in some overseas tax jurisdictions to discuss and negotiate tax issues and disputes across the table between taxpayer and tax administration,with an earnest intent to resolve matters,” said Vikas Vasal, national leader, tax, Grant Thornton.

The Confederation of Indian Industry (CII) lobby group has pitched for a mediation mechanism in its pre-budget wish list. It has suggested that the government constitute a panel of experts comprising retired tax officials and experienced professionals to mediate.

“This process saves time and cost and helps in resolving many issues,” said Vasal of Grant Thornton. “The government would also have to provide necessary protection to the revenue or independent authority acting as the mediator from unnecessary questioning and its decisions being challenged in future, to make such a scheme successful.”

The government has sought to partially address this demand in the past through Advance Pricing Agreements (APAs) for transfer-pricing cases or by the Mutual Agreement Procedure (MAP) involving a settlement between the competent authorities of the respective governments, said Rakesh Nangia, chairman, Nangia Andersen Consulting. “Still, the need is felt for a more comprehensive tax-mediation mechanism, where taxpayers can have a dialogue for settlement of their tax disputes in all types of cases.”


The US Internal Revenue Service has a voluntary mediation programme known as Fast Track, which helps resolve disputes in 40-120 days, much faster than the traditional appeals process. An independent mediator facilitates the settlement discussion and helps reach an agreement on the disputed issues. A key feature of Fast Track is that the taxpayer retains the right to traditional appeal if the dispute remains unresolved through the mediator.

In the UK, Her Majesty’s Revenue and Customs has introduced alternative dispute resolutions by way of mediation, which involves a trained officer acting as a neutral third party, without forming a view on what is right or wrong, to settle tax disputes.

Tax Dept allows joint property owners to file returns using simple forms

Source: Business Standard, Jan 09, 2019

New Delhi: Rolling back its week old order, the Income Tax Department on Thursday allowed joint owners of single house property to file income tax return using simple Form-1 (Sahaj) or Form-4 (Sugam).

On January 3, it had debarred individual taxpayers owning house property in joint ownership and those who paid Rs 100,000 in electricity bills in a year or incurred Rs 200,000 expense on foreign travel from filing their annual income return using the simple return forms.

“After the notification, concerns have been raised that the changes are likely to cause hardship in the case of individual taxpayers,” the Central Board of Direct Taxes (CBDT) said in a statement.

According to the statement, the issue was examined and “it has been decided to allow a person, who jointly owns a single house property, to file his/her return of income in ITR-1 or ITR-4 Form, as may be applicable, if he/she meets the other conditions”.

“It has also been decided to allow a person, who is required to file return due to fulfilment of one or more conditions specified in the seventh proviso to section 139 (1) of the Act, to file his/her return in ITR-1 Form,” it added.

The government, which usually notifies forms for filing income tax returns by individuals in April every year, on January 3 notified tax return forms for assessment year 2020-21 (income earning year April 1, 2019 to March 31, 2020).

Returns in ITR-1 Sahaj can be filed by an ordinary resident individual whose total income does not exceed Rs 50 lakh, while Form ITR-4 Sugam is meant for resident individuals, HUFs and firms (other than LLP) having a total income of up to Rs 50 lakh and having presumptive income from business and profession.

Read the rest of this entry »

Companies under IBC process may get GST relief

Source: The Economic Times, Dec 23, 2019

NEW DELHI: The government may allow companies undergoing resolution under the Insolvency and Bankruptcy Code (IBC) to pay current levies of goods and services tax (GST) without the mandatory payment of past dues. This will remove a hurdle in the bankruptcy resolution process.

Ministry of Corporate Affairs and Department of Revenue (DoR) officials have begun talks on the matter and a framework is likely to be unveiled soon, two senior government officials told ET. “The issue is under discussion… A procedure will be worked out,” said one of them, adding that the officials are expected to meet this week to finalise the contours.

Tax authorities are treated on a par with operational creditors and eligible to receive payments with others. However, GST framework currently doesn’t allow a firm to file current tax dues if it has past dues. Penal action has been initiated for noncompliance even in cases where the insolvency resolution process has been initiated or GST registration has been cancelled.

This comes in the way of efforts to revive a company under IBC process. Industry organisations have lobbied the government on the issue, asking it to accept current GST dues while giving a moratorium on past ones.

Experts said there’s a need to align GST and IBC. “It is important that the period during which the corporate insolvency resolution process (CIRP) takes place is insulated from the past GST compliances of the company,” said Pratik Jain, indirect taxes leader, PwC.

Industry backs immunity for corporate debtors from penalties or prosecution for noncompliance under the GST regime. “There is a need to recognise the fact that there could be several cases of default in GST filings/payments due to genuine reasons,” said MS Mani, partner, Deloitte India. “Such defaults should be condoned, possibly with a small penalty and the focus should be to avoid business disruptions.”
The Chennai bench of National Company Law Tribunal (NCLT) recently directed revenue authorities to allow corporate debtors to access the GST portal to file taxes after the commencement of insolvency proceedings.

GST compensation to 9 states put at Rs 70,000 Cr

Source: The Economic Times, Dec 20, 2019

Mumbai: The Goods and Services Tax compensation requirement of nine major states could be as much as Rs 70,000 crore in fiscal 2020, ratings firm ICRA has estimated.

This would put significant pressure on the central government’s accounts which are already under stress from the cut in corporate tax rate and other stimulus measures.

Considering lower-than-expected GST collections — ICRA estimates this revenue to fall Rs 3.5 lakh crore short at the central level for this fiscal year compared with the July 2019 budget estimate of Rs 24.6 lakh crore — the total shortfall for all states could touch Rs 2.2 lakh crore in FY20.

Apart from this, the timing of the release of GST grants to state governments pose a key risk to the cash flows of the states, considering the size of the amount in question.

“The nine states that we have studied are likely to require a sizeable Rs 60,000-70,000 crore as grants for GST compensation in FY2020, twice as high as the compensation they received in FY2019. The timing of release of such grants by the GoI (Government of India) to the states would critically affect their cash flows and the pattern of fundraising in the rest of this fiscal,” said ICRA’s group head-corporate sector rating, Jayanta Roy.

This further poses a two-part risk for the states. A shortfall in their revenue implies a revenue expenditure side risk on additional outgo towards welfare schemes, drought and flood relief, and salaries. On the other hand, ICRA estimates that states would increase issuances of state development loans to plug the gap, resulting in higher state fiscal deficits.

The nine states that were covered in this study were Karnataka, Kerala, Gujarat, Maharashtra, Punjab, Haryana, Rajasthan, Tamil Nadu and West Bengal. These have budgeted for an aggregate fiscal deficit of Rs 3 lakh crore in their respective FY20 budget estimates.

These figures amount to around 2.5% of their gross state domestic product (GSDP), according to ICRA, which is below the 14th Finance Commission’s threshold state fiscal deficit at 3% of GSDP.

GST Council votes for a change, shifts lotteries to highest slab

Source: The Economic Times, Dec 18, 2019

NEW DELHI: The Goods and Services Tax (GST) Council on Wednesday departed from its practice of consensus-based decision-making, opting the first time for a vote to settle differences among states over the taxation of lotteries.

The council also deliberated upon a presentation made by a committee of officers set up to study revenue augmentation, but refrained from any generalised rate increase or removal of exemptions. Read the rest of this entry »