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Category: Letters

Letters

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Sir,

I am an avid reader of BCAJ. The article captioned “Accounting of Foreign Currency Translations,” which appeared in the February 2012 issue of the BCAJ, provided immense clarity on the subject. It captured all the complications in a precise and concise manner.

I request you to publish an article on the same subject giving stepby- step guidance on journal entries to be passed.

—R Dilip Kumar Chartered Accountant

Sir,

The Budget presented in Parliament by Hon. Finance Minister reminded me of the remark made by Vidya Balan, the heroine of Dirty Picture, with a slight modification – “Expenditure, Expenditure, Expenditure.” Source: Robbing the Future and Digging the Past (Retrospectively). All that remains for him to say is, “Aur main expenditure hoon.” And sure he is. The so-called deficit, both revenue and fiscal, has been reworked cleverly using divestment target (Rs. 30,000 Crore) which will never materialise (?), gap in the revenue and expenditure of over Rs. 1,85,000 crore, which is left unbalanced, assumes subsidy burden of 2% (which will in all probability be far more at 4% to 5% of GDP)… the list is endless, and of course there is the borrowing, the growing debt of the Centre and the States. As if not satisfied with it, they now want to turn into grave-diggers by digging money and taxes from the past with retrospective amendments dating back to 1961, when I was a threeyear- old baby and many of us were not even born. The Budget claims to aim at a faster, sustainable and more inclusive growth in a stable environment. FM reiterates in Para 8 of his speech. “I know that mere words are not enough. What we need is a credible road map backed by a set of implementable proposals to meet these objectives…” Good words indeed, but again empty words. Our new Budget jingle will be – “Spend it all, spend it all, spend it all the way. Oh what fun it is to spend, When you’re not answerable any way.” Yes, there are increased doses of expenditure in all areas of the economy. But it does not add up to a sustainable game plan. Then there is the regressive move to enlarge service tax burden by a whopping 20% from 10% to 12%, which will hit the poor and the middle-class the most. There is a lot of devil in the fine print as well – Alternate Minimum Tax extended to all taxpayers, then there is TDS @1% on transfer of immovable property, TCS of 1% on cash sale of gold/bullion and jewellery. Special tax courts for summary trials and prosecution makes us look like petty offenders, rather than honest law-biding citizens. To top it up is the GAAR. The whole sense that it conveys is an extreme authoritarian hegemonistic attitude, where rather than treating the tax payers as partners in progress they are made to look like criminals and cheats. Unless we act, our position would be as illustrated in the Sanskrit couplet “Ashwam Naiva, Gajam Naiva, Vyagrham Naivacha Naivacha, Ajaputram Balim Dadyat Devo Durbala Ghatakaha”. (Not the horse, nor the elephant, and never the tiger, it is the kid goat that is sacrificed to the Gods.) We will be the sacrificial lambs.

—Dr. Vishnu Kanhere
Chartered Accountant

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LETTERS to the editor

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The Editor,
BCA
Mumbai

Re: “Make in India” and “Ease of Doing Business in India” – Some Tax Irritants

Dear Sir,

The Prime Minister of India has launched “Make in India” campaign and has given strong indications to make India a friendly place to do business. India has continuously languished in the global ranking of “Ease of Doing Business”, and while foreign investors find India an attractive market, they find operational environmental both chaotic and uncertain. The PM has, during his foreign trips, promised foreign investors that they can look forward to a more congenial, transparent and consistent operating environment.

Amongst the many painful points frequently outlined by MNCs and investors, are the tax rules pertaining to taxation of overseas employees who have been sent on deputation/secondment by an MNC from its Head Office or other major international office to India to establish and streamline Indian operations/projects, as the case may be.

Normally, these seconded employees work under the direct control and supervision of the Board of Directors of the Indian Subsidiary and continue to receive their remuneration with all social security benefits from the parent entity. Such costs and remuneration are reimbursed by the Indian subsidiary to the parent entity.

Generally, it is contended by the Taxpayer (Indian Company) that reimbursement of such remuneration and other related costs of the seconded employees cannot be treated as payment of Fees for Technical Services [FTS] or Fees for Included Services [FIS]. Therefore, the taxpayers contend that such payments are not liable for TDS in India. However, such reimbursement of salary and costs by the Indian subsidiary has been a matter of huge controversy as the Tax Department seeks to tax such payment, as ‘fee for technical services’ or ‘fee for included services’ and holds the Indian subsidiary liable for consequences of not deducting TDS.

In a large/overwhelming number of judicial decisions, it has been held that such payment constitutes “Reimbursement of Expenses” and not “ FTS/FIS” and that even if presence of such Seconded Employees constitutes a Service PE in India, there is no net taxable income in India. The Tax Department has strenuously contested this and raised huge demands on Indian subsidiaries. This increases the cost of doing business in India for the foreign enterprise and devotion of management time and resources for undertaking the unnecessary, time consuming, costly and repetitive litigation, right upto the Apex Court.

Even if the Department’s stand is plausible in Law, such an Interpretation ought to be avoided, particularly in view of Prime Minister’s Modi’s “Make in India” Campaign and his desire to improve India’s Global Ranking on ease of “Doing Business”. Viewed from another angle, what would be our reaction if our Indian Enterprises operating abroad are similarly double taxed in the Foreign Country on the Reimbursement of Costs and Remuneration of Key Personnel deputed from India, in addition to taxation of such remuneration in the hands of the concerned employees.

The Prime Minister, Finance Minister and the CBDT should take cognisance of this burning problem and bring it to rest once and for all.

This would send a positive message and present India as a liberal, pragmatic, positive and matured destination for investment, as much as any other developed country for that matter.

Regards,
Tarun Singhal

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Levy of Tax on Interest on NRE Deposits

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20th January, 2016

The Editor,
Bombay Chartered Accountants Journal
Mumbai.

Dear Sir,

Re: Levy of Tax on Interest on NRE Deposits

Presently, interest received on NRE Deposits by a Non Resident Indian (NRI) is exempt under section 10(4) of the Income-tax Act. However, the NRIs working and residing in advanced / western countries such as USA, UK, Australia, Canada, New Zealand, France, Germany etc. are liable for tax in the respective home countries on their global income. In this respect, the Taxation Laws in foreign countries are at par with the Law in India [Section 5(1) of the Act] which mandates that a resident in India is liable to pay tax in India on all incomes from whatever source derived.

Now, in view of FAT CA in USA and other similar Laws in other countries, such NRIs are required to declare their Indian Financial Assets and income there from in their Home Countries and pay tax thereon, irrespective of Tax Treatment extended by Indian Government to the NRIs in respect of Income from their Foreign Exchange Deposits /Financial Assets. Therefore, it makes no sense for India to continue to have provisions like Section 10(4) exempting interest income of NRIs from certain bank deposits and Government Securities as the law abiding NRIs are bound to declare such Indian Income and pay tax thereon at full rate in their respective countries of residence.

Therefore, I feel that such Income should be taxed at a reasonable rate, say between 10-15%, so that the Tax Revenue is reasonably shared between the source country(i.e. India) and the country of NRI’s residence (Home Country). The NRI would not be a loser because he would get tax credit / set off in respect of taxes paid / withheld in India against his tax liability in his Home Country.

The tax rate under various Tax Treaties signed by India prescribe tax rate between 10% to 15%. Therefore, it would be eminently feasible to levy tax on NRE deposits @ 10% without causing any additional tax burden on NRIs or causing flight of capital /NRI deposits from India. Such a levy of tax needs to be properly explained/ communicated to the NRIs.

To facilitate easy tax compliance, the Law may prescribe rate of TDS on Interest earned by NRIs (including Interest earned by them on NRO deposits) @ 10%. However, in case of those NRIs who have such Interest income below basic exemption limit, they should be entitled to submit Tax Return like any other Indian Citizen and claim various exemptions and deductions available under the Law and claim refund of TDS which should be granted expeditiously.

In this manner, India can garner substantial tax revenue from NRIs without posing any additional tax burden on the NRIs or causing flight of NRI Deposits.

Yours sincerely,

Tarunkumar Singhal


The Editor, BCAJ, Mumbai.

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Dear Sir, Re: Accelerating Economic Growth – India needs State Level Reforms & Liberalisation

India’s GDP growth has halved from over 9% in 2010-11 to just 4.5% in the current year. Many economists, industrialists, investment analysts and business observers & advisors are demanding more economic reforms from the Government. Recently, the Union Cabinet has cleared projects worth more than Rs. 3 lakh crore. Yet, industrial growth remains below 2%, and the index of industrial production has actually fallen.

One really wonders: why so much effort is producing so little result? There are many shades of opinions, answers & suggestions. One of the important reasons is that though economic reforms at Central Level are essential they have stagnated. In a Federal Structure, we also need additional economic reforms at the State Level.

Gone are the days when an industrial licence was the key hurdle. Today, not just Union Government but the State Governments too have, in their worthy search for inclusiveness, created voluminous laws and regulations regarding conservation of environment, forests, tribal areas and land acquisition etc.

Even central regulations have to be implemented by officials in the State Secretariats and at district levels. The states themselves have to approve / grant many clearances / licenses/ permits/ NOCs relating to forests, tribal areas, environment, mining rights, pollution and land acquisition, power / water supply etc. Thus, hundreds of projects do not move forward.

The States need to rethink their approach towards economic growth. They have limited technical and bureaucratic capacity, and cannot easily handle even public law & order and task of providing various basic services to the public. The Doing Business 2013 report of the World Bank ranks India at only 134th of 189 countries in ease of doing business. India comes only 179th in ease of starting a business, 182nd in ease of getting a construction permit, 111th in getting an electric connection, 158th in paying taxes, 92nd in ease of registering property and 186th in enforcing contracts.

Most hurdles to doing business in India require state-level reforms, not just the central level. State governments are important actors in granting permissions / approvals / clearances to commence a business (particularly an Industrial Project), notably in the conversion of agricultural land into an industrial land.

Businessmen pay both central and state taxes, several times a year. They pay Corporate tax, Service tax, Excise Duty, Customs duty, Octroi, Municipal taxes, Sales tax / VAT, Entry tax and a host of other minor imposts, each entailing hours of paperwork. It is ridiculous that India is 158th in this respect despite having some of the best software companies in the world, which can surely devise simplified, quick tax payments.

One rarely hears a Chief Minister or a state level Finance Minister, Law Minister, Industries Minister, Revenue Minister or Urban Development Minister ever talking about State Level Economic Reforms or laying Road-map for the same. Therefore, we need to stop focusing on just macroeconomic or central government reforms. The most urgent reforms in many fields are needed at the state level and the time has come for voters to demand similar economic reforms in various arenas in their state.

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Editor

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Editor,

Re: Make Section 206AA inapplicable to Non Residents

After 8 years of inaction/ drift, a number of mega scams and countless reported incidents of corruption at high echelons of Indian polity, the Government has now woken up and has initiated steps to stimulate economic growth, encourage FDI and remove misapprehensions from minds of foreign investors caused by the policy paralysis and various retrospective amendments by the Finance Act, 2012.

At the ground level, one provision which greatly inconveniences and irks Non-Residents is Section 206AA inserted with effect from 01-04-2010, requiring every person to obtain and furnish his PAN Number to the payers or otherwise, be ready to suffer TDS @ 20% irrespective of the actual rate of TDS applicable to the transaction either under the Tax Treaty or under various provisions of Incometax Act applicable to Non Residents. One fails to understand the rationale of making this provision applicable to Non-Residents.

 The Non-Residents, particularly those who do not have frequent transactions with India, are very hesitant to obtain PAN. Further, the procedure for obtaining PAN is very cumbersome and time consuming. In most transactions, the Non-Resident wants payment net of tax and, therefore, the burden of paying the tax @ 20% falls on the Indian Resident and it works out to 25% due to the application of Grossing up provision u/s 195A.

The Government has all the Information online about the Non-Resident payees, as the payer has to upload full details about all remittances in Form 15CA before making any remittance overseas. If the resident payer makes any mistake in deducting TDS from any remittance to a Non-Resident, the payment is liable to be disallowed u/s 40(a)(i) besides other consequences by way of recovery of tax short deducted, interest and penalty.

How many advanced countries have such harsh provisions? The FM should consider consequences for Indian MNCs and others, if India’s trading partners were to introduce provisions similar to Section 206AA in their Tax Laws.

If the Finance Minister really wants to create a business / investor / tax payer friendly environment in India, he should make Section 206AA inapplicable to Non-Residents. Such an action would remove a massive irritant and also reduce the cost of doing business with Non Residents.

Yours sincerely,

Tarun Singhal.

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