Source:  RBI Circulars. SEBI, PDICAI

Direct tax collection off target as companies log tepid profit growth

The government has fallen short of its direct tax collection target of Rs 5 lakh crore for FY12 even after revising the projections thrice as the economic slowdown impacted companies which reported a marginal increase in profits in the fourth quarter of the last fiscal. The all-India tax collection, as on April 11, was below Rs 4.95 lakh crore, according to figures available with the income-tax department, senior officials said. The revenue department had revised the target twice last fiscal, revising it upwards from the original target of Rs 5.32 lakh crore to Rs 5.80 lakh crore during the course of the year, only to rework it to Rs 5 lakh crore towards the close of FY12. The original target of Rs 5.32 lakh crore was nearly 19% higher than the collection of Rs 4.48 lakh crore in FY11. Initially, the government had pegged the target high hoping to keep the fiscal deficit at below 5% of the GDP in 2011-12. The government has projected a fiscal deficit of 5.1% in 2011-12.

CBDT chairman was not available for comment as he was travelling abroad. The chief commissioner of income-tax, Mumbai, NP Singh, declined to comment on the shortfall. “I cannot give a reason for the shortfall,” he said. However, senior officers of the I-T department are of the view that the government should be reasonable in fixing the target, since tax collection is linked to the state of the economy and the growth in national income.

E-filing of return must for over Rs 10 lakh income

It is now mandatory for individuals with income of over Rs 10 lakh to file their tax returns for 2011-12 electronically.“e-filing has been made compulsory for the person who is an individual or a Hindu Undivided Family, if his or its total income, or the total income in respect of which he is or it is assessable under the Act during the previous year, exceeds Rs 10 lakh for assessment year 2012-13 onwards,” the I-T Department said.

Cabinet to take up GST-Network proposal

The union cabinet is on Thursday likely to take up a proposal for creation of an IT platform to integrate central and state indirect taxes regime and set the stage for goods and services tax(GST). The cabinet is also expected to take up a proposal to extend government’s support for pension scheme for unorganised sector to five years from three years. States had given their in-principle nod to launch the IT framework called GST- Network in August last year. A common IT framework will allow traders all over the country to use their permanent account number, or PAN, as the tax identification number for payment of all direct and indirect taxes. The move will not only benefit taxpayers but also allow tax authorities to keep a tab on transactions more effectively by linking it with other tax payments. The GST-N is being proposed to be created as a special purpose vehicle in which the centre, state governments and private sector will hold stake. IT infrastructure is crucial for the success of the proposed GST, which will replace a plethora of indirect taxes including excise duty, service tax, and value-added tax.

Supreme Court asks Sebi to amend rules, reconsider MCX Stock Exchange plea

Delhi : In what may facilitate the operationalisation of a new full-fledged stock exchange in the country, the Supreme Court has asked market regulator Sebi to amend its regulations and consider the plea of MCX Stock Exchange (MCX-SX) which is seeking permission to offer equity trading, within three months.The apex court disposed off Sebi’s special leave petition (SLP) challenging the Bombay High Court order which directed the regulator to reconsider MCX-SX’s application afresh by April 14.With this the regulator will have to take a relook at norms relating to the manner of increasing and Maintaining Public Shareholding in Recognised Stock Exchanges (or MIMPS).The SC, in its order, said Sebi shall amend provisions relating to buy-back and commonality clauses in MIMPS Regulations, 2006, and consider the MCX application under the amended provisions within three months. A bench comprising Justice Aftab Alam and Justice CK Prasad on Wednesday passed the order taking into account the consent of the litigant parties, Sebi and MCX SX, and its promoters.

Alternative Investment Funds may shun bourses

Maharashtra : The Securities and Exchange Board of India’s (Sebi) decision to allow Alternative Investment Funds (AIFs) to list their units on stock exchanges is likely to receive a tepid response. Sebi’s new AIF regulations, replacing the present norms governing venture capital funds (VCFs), will also govern private equity funds, real estate funds and hedge funds, among others. The new norms will allow listing of AIF units on exchanges, subject to a minimum tradable lot of Rs 1 crore. However, AIFs will not be allowed to raise funds through the stock exchange mechanism.Under Sebi’s present VCF regulations, venture capital funds are allowed to list their units only after three years from the date of issuance. However, this provision has seen lukewarm response and no VCF has listed its units on stock exchanges.

Scope limited for monetary policy easing

Maharashtra : To reignite growth, India needs structural reform and not monetary policy easing. The sense of policy paralysis has really hurt investment sentiment in India, foreign and domestic, said Mr Leif Eskesen, Chief Economist for India and Asean, HSBC, in an interview with Business Line.The scope for the RBI to move to an easy monetary policy stance is low due to concerns such as inflation risks, absence of structural reforms and high fiscal deficit, he said.What do you expect in terms of rate action from the RBI’s monetary policy?It will be a close call.

Policy uncertainty hurt FDI flows in FY11: RBI study

Maharashtra : After the global financial turmoil, the Indian economy recovered to grow at 8.4 per cent in 2010-11. But in the same year, foreign direct investment (FDI) flows fell to $20.3 billion from $27.1 bn a year ago due to policy uncertainty, according to a Reserve Bank of India study. A comparison of FDI flows to India vis-à-vis the potential showed investments tracked the potential level till 2009-10, before falling by about 25 per cent during 2010-11.The quality of policy implementation had a role in slowing the flow of investments despite the robust nature of the Indian economy.

Lavasa plays infra card to get RBI leeway on debt recast

Maharashtra : The Reserve Bank of India (RBI) on Wednesday met various bankers to discuss the debt recast of Lavasa Corporation, which has now turned non-performing for them. On their part, the bankers made a request to the regulator for a special dispensation in terms of lower provisioning even after the debt recast. For the record, banks can restructure a loan and continue to treat the account as performing, but then the standard asset provisioning requirement would go up five times. While normal loans madate a 0.4 per cent provisioning on standard asset, a restructuring would imply that the provisioning requirement rises to two per cent. Also, banks have to provide for diminution in the net present value of the project that may arise out of extending the loan repayment period.

High Court ruling on dividend income a relief for brokers

Delhi : If a share broker takes a loan to buy shares and pays interest on it, he can adjust this expenditure against total trading profit, including tax-free dividend income, if the dividend income is incidental to his business of buying and selling shares.In such cases, the income-tax department cannot, by applying Section 14 of the Income Tax Act, bifurcate the trader’s expense (interest on loan) proportionately between trading profit and dividend income and disallow the same on dividend income on the ground that while trading income is taxable, dividend income is exempt under Section 10 of the IT Act.Section 14 A states that any expense incurred on earning exempt income is to be disallowed. This was the sum and substance of a recent High Court of Karnataka ruling in the case of CCI, a distributor of state lotteries and a dealer in shares and securities, versus joint commissioner, income tax.

International Taxation : Japanese buyer to withhold tax in Max Life deal

Delhi : In an after-effect of the Vodafone tax case, MS&AD Insurance Group of Japan will withhold tax while buying 26 per cent stake in Max New York Life Insurance for Rs 2,731 crore.New York Life Insurance Company would make the capital gains. It said these should not be subject to tax in India, as it held the shares in the life insurance joint venture with Max India through a holding company in Mauritius. However, it has allowed the Japanese company to withhold the tax as a precaution and would file for a refund with the tax department later “The buyer is withholding tax on this transaction. There are complicated tax issues involved here (in India). We are going to pay 35 per cent tax in the US on our capital gain in this tax and we will get credit for tax we pay anywhere else. Our share in Max New York Life is through a Mauritius holding company and as per the India-Mauritius tax treaty, we do not believe there will be a tax payable in India,” said Michael Sproule, executive vice-president and chief financial officer of New York Life. The buyer, MS&AD, may have to withhold tax at 21 per cent of the capital gains made by New York Life. The latter is selling 16.63 per cent holding to MS&AD and the remaining 9.37 per cent to Max India for Rs 182 crore. MS&AD will buy the 9.37 per cent from Max India for Rs 984 crore.

Andhra textile stir over VAT hits Surat synthetics

Gujarat : The growing stir by textile traders in Andhra Pradesh on the state value-added tax (VAT) has already affected the synthetic textile industry in Surat, Gujarat. As against a normal daily dispatch of textile fabric and apparel worth Rs 25 crore from Surat to Andhra , the business has slowed by 80 per cent in a week.The stir is a protest at the imposition from July last year of five per cent value added tax (VAT) by the Andhra government, the only state to do so. Andhra’s textile traders are set for an indefinite strike from April 30 and to stop purchasing from other states from April 15. “The VAT issue in Andhra Pradesh has been on since long but with the traders now deciding to go on strike, dispatches are already being cancelled. Traders and buyers from AP have begun cancelling or stalling the dispatches, leading to a loss of Rs 20 crore for the textile industry here,” said Yuvraj Desale, president of the Surat Textile Goods Transport Association.

RBI may cut policy rate by 25 bps, feels market

Maharashtra : There is an expectation among many that the Reserve Bank of India (RBI) would cut the repo rate (at which it lends to banks) by 25 basis points in its annual policy review meeting scheduled on Tuesday, to boost growth in the economy. After increasing the policy rate 13 times between March 2010 and October 2011, to 8.5 per cent, the central bank made no change in its last two policy reviews. Quite a few economists and market participants believe the high global oil prices may act as a deterrent for a rate cut, but, the cost of not cutting is also rapidly rising. reflected, for instance, in slowing economic activity. “Today’s weak IIP (Index of Industrial Production) data, along with lower core inflation, should cement the case for a rate cut, as the cost of not cutting rates is rising.

Irda for state-backed health insurance scheme

Andhra Pradesh : The Insurance Regulatory and Development Authority (Irda) has strongly come out in support of an upcoming government-backed health insurance policy aimed at providing health cover to a large population of the country.” Why not have a state-backed health insurance coverage for people when practically all the governments in the world have similar coverage for their citizens,” asked Irda chairman J Hari Narayan. He was referring to a meeting of a group of experts in the Planning Commission today on the new health insurance scheme which is in the works. Stating the cover could be on the lines of the Rashtriya Swasthya Bima Yojana, he said Irda had to see the contours of the scheme once it was ready. A government-backed health scheme involved risks, too. “One such could be that the pricing may go up,” he said, while addressing the launch of Health Forum, a self-regulatory body that Irda constituted to address the issues of the health insurance sector.

Centre approves public procurement Bill

Delhi : Ahead of the Parliament session, the Union Cabinet on Thursday approved a legislation that seeks to cleanse the system of procurement woes for public entities in the country. The Cabinet also cleared a proposal to switch from the current mixed structure to ad valorem royalty on coal and lignite.The public procurement Bill would be introduced in the coming session of Parliament, which starts from Monday, an official statement said.

Regards,
Siddhesh Sardesai
IW Committee

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