Friday, February 19, 2010

CA.SAJI MATHEW, FCA Chartered Accountant, Vice Chairman , ICAI, KOCHI

DIRECT TAXES Rate of depreciation on Motor Cars: Issue With sharp increase in the rate at which new models of cars are being introduced, the rate at which motor cars are becoming obsolete has also gone up considerably. As such, the current rate of depreciation of 15% on motor cars is very less in view of the fact the average economical life of a motor car is very less. Recommendation The rate of depreciation on motor cars has to be increased to at least 25%. Rate of depreciation on Plant & Machinery Issue :Depreciation rate on General Plant & Machinery is at present 15%. In view of the fast change in technology, the plant & machinery gets obsolete within few years of its purchase. Recommendation In view of the above, it is suggested that the rate of depreciation on plant & machinery be increased from the current rate of 15%, and be at least restored to the earlier 25%.
Tax Audit Threshold Limit:Threshold limit of Rs. 40 lacs for tax audit Tax Audit is applicable in cases where the turnover exceeded Rs. 40 lacs. This limit was introduced way back in 1985 and needs to be amended keeping in view the current scenario .
Recommendation In view of the above, it is suggested that the Threshold limit of Rs. 40 lacs be increased to atleast Rs.1 Crore

TDS rate for Professional or Technical Services u/s 194J :
The present rate of TDS is 10% of the amount paid/credited is high . This is resulting in Huge amount of Refund claims and delay in processing. This is unnecessary as the higher rate is noot justifiable I this sector.
Recommendation In view of the above, it is suggested that the rate of TDS deduction be amended to 5% and the threshold limit increased to Rs. 50,000 /- in a financial year.
ANOMALIES TO BE ADDRESSED
The Finance Act 2009 had rectified the anomaly relating to computation of exempt profit under Section 10AA of I-T Act with effect from Assessment Year 2010-11. However, it does not address the anomaly for AYs prior to AY 2010-11. In this regard a clarification/ amendment is essential to provide benefit of the above to units set up before AY 2010-11.
DIRECT TAX CODE & GST - ROADMAP
Budget 2010 proposals would be seen as a guiding path for the implementation of Direct Tax Code (DTC) and Good and Service Tax (GST). A clear cut road map is essential in this Budget in implementation these two important taxes if this has to revolutionize the taxation regime in India in future.
MAT: (MINIMUM ALTERNATE TAX)
Further the STPs and EOUs do not enjoy a pure tax free status (as envisaged by the original legislative intent) as they are subject to Minimum Alternative Tax (MAT) at a rate of 16.995% on their book profits. Given the prevailing economic downturn, the levy of MAT results in immediate cash outflow causes undue financial hardship. Therefore a rollback of MAT for units operating in STPs and EOUs would bring immediate respite. Also this would create a level playing field for units located in STPs, EOUs and SEZs, which enjoy an exemption from payment of MAT
IT INDUSTRY
In the backdrop of the changing economic scenario and the run up to the Budget 2010, the IT industry is looking for support from the Government to help overcome the crisis by addressing the below mentioned in the Budget 2010. Considering the recent economic developments and the thin margins at which the Indian IT industry operates, one of the key area where the industry is looking at the Finance Ministry is the extension of the unexpired tax holiday period of the units located in Software Technology Parks (STPs) and Export Oriented Units (EOUs), which ends in Financial Year 2010-11, by another three years to 2013-14.
According to Indian IT-BPO sector performance estimates FY 09-10 released by Nasscom Indian IT sector presently contributes nearly 6 per cent to the national GDP, employs approximately 2.3 million people directly and over 8 million people indirectly and has a global market share of 51 percent. The sector is currently facing acute challenges from multiple front, namely, current global slowdown, protectionist policies of the new US administration, appreciation in rupee, increasing cost and emergences of cost-effective outsourcing destinations like Philippines, Vietnam, China and Eastern European nations.
TRANSFER PRICING:
In the last few years, captive subsidiaries of foreign companies have faced intense scrutiny in transfer pricing audits with latest number suggesting that adjustments amounting to approximately Rs 10,000 crores for AY 2006-07. In order to resolve the increasing transfer pricing controversy, FA 2009 had introduced an alternative dispute resolution panel. However, this being the first year of implementation it remains an unexplored and untested avenue. Further as envisaged by FA 2009, detailed rules to implement the safe harbor provisions are still keenly awaited by the industry to bridge the expectations of conservative tax payers and that of greedy tax authorities.
When compared with other developed countries, there is also a need for introduction of Advanced Pricing Arrangements (APA) wherein the taxpayer can enter into an APA with the Revenue Authorities and mutually decide on arm's length price in case of international transactions with their overseas group companies.

CA.SAJI MATHEW, FCA Chartered AccountantVice Chairman , ICAI, KOCHI
ssmathew@asianetindia.com

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