No change in gold seizure norms in proposed I-T Law amendments

NEW DELHI: There will be no seizure of gold jewellery and ornaments to the extent of existing guidelines during search operations, the government has clarified, allaying fears of possible action against household gold savings following the proposed amendments to the Income-Tax Act.

The proposed amendments also do not seek to tax inherited gold and jewellery as also those items that are purchased through disclosed or agriculture income, Central Board of Direct Taxes (CBDT), the apex direct taxes body, said in a statement on Thursday.

There will be no seizure of gold jewellery and ornaments to the extent of 500 grams per married lady, 250 grams per unmarried lady and 100 grams per male member of a family during search operations, it said, reiterating existing guidelines.

The government has proposed amendments to the I-T Act through Taxation Laws (Second Amendment) Bill, which received Lok Sabha approval on Tuesday, seeking to impose up to 85 per cent tax and penalty on undisclosed wealth that is discovered by tax authorities during search and seizure.

This had triggered rumours that gold jewellery could be covered under the amended law. Dispelling such apprehensions, CBDT has clarified that no new provision had been introduced regarding chargeability of tax on jewellery.

"The jewellery/gold purchased out of disclosed income or out of exempted income like agricultural in-come or out of reasonable household savings or legally inherited, which has been acquired out of explained sources, is neither chargeable to tax under the existing provisions nor under the proposed amended provisions,"it said.

"Further, legitimate holding of jewellery up to any extent is fully protected,"it said.

The bill, which is currently under consideration of the Rajya Sabha, proposes to amend Section 115BBE of the Income-Tax Act to provide for 60 per cent tax and a 25 per cent surcharge on it — totalling 75 per cent — on black money holders.

Another section inserted provides for an additional 10 per cent penalty on being established that the undeclared wealth is unaccounted or black money, taking the total incidence of levies to 85 per cent.

CBDT said tax rate under section 115BBE is proposed to be increased only for unexplained income as there were reports that the tax evaders are trying to include their undisclosed income in the return of income as business income or income from other sources.

"The provisions of section 115BBE apply mainly in those cases where assets or cash etc. are sought to be declared as 'unexplained cash or asset' or where it is hidden as unsubstantiated business income, and the assessing officer detects it as such,"the CBDT statement said.

The bill also proposes to raise penalty under I-T Act for search and seizure cases to 30 per cent, from 10 per cent or 20 per cent currently, in a move aimed at deterring black money holders.

Once the amendments are approved by Parliament, there would be a penalty of 30 per cent of unaccounted income, if admitted and taxes are paid. This would take the total incidence of tax and penalty to 60 per cent.

The government has decided to retain the provision of levying penalty of 60 per cent of income in "any other cases" while proposing to amend Section 271AAB. This would raise the incidence of tax and penalty to 90 per cent.

In a separate decision, the government has done away with exemptions from countervailing duty of 12.5 per cent on imports of gold coins.

Source: Economic TImes

View: Why tax evaders will have to fall in line for their own good post demonetisation

By Uma Shashikant, Chairperson, Centre for Investment Education and Learning

Recent events have evoked a mix of emotions among Indians. The rich have bought expensive white goods and luxury items in a rush to consume whatever cash they had. Unscrupulous businessmen paid advance salaries, retired debt with old notes and wove schemes to whitewash as much cash as possible. The common household swung between smug satisfaction at having a wallet of credit and debit cards to despair while scrambling to pay for groceries, gas refills and the dhobi. The poor daily wage earner was left worrying about how to plug risks to his income.

There is no denying that the poor have been inconvenienced the most due to the shortage of cash. Not all of them have bank accounts, and not many are literate enough to deal with formal processes of the banking system. However, they do not have stocks of cash nor do they earn enough to pay taxes. Their problems will ease when there is enough money to go around. Hoarders, white-washers, money-mule seekers, cash mafias and exploitative employers can endanger restoring cash for the use of the unbanked poor. It is not clear if the government has the wherewithal to protect them while penalising the rich. The return of this segment to its cash dealing is critical to its wellbeing, and will not impact the macro objectives of demonetisation. This segment cares about the flow of cash, and not the stock of cash. It does not have enough to hoard.

The working class that earns a formal salary is already subject to TDS and is paying taxes where applicable. This segment is rightfully smug as it is business as usual for them with their wallet of cards and fearless use of post-tax money. The segment that works in informal sectors will have to demand payment through the bank, and learn to be compliant. Not very difficult, provided employers comply. They now have to learn the basics of dealing with a bank, pay taxes where needed, and protect their accounts and their money with the understanding about how the new system works.

Those who run small proprietary business, or earn from a profession are very used to dealing in cash. This is the segment with no service tax or business registration. It routinely bribes local politicians, police and other vested interests to stay in business. It employs people without following formal rules of engagement. It actively hides its earnings to reduce tax burden. It also suffers from lack of knowledge and expertise to set up firm accounting and finance systems.

The roadside vada-pav seller who makes Rs 2,000 a day, pays off too many people to care about paying taxes. The interior designer, the fashion boutique, the beauty salon, the small clinic, the catering contractor and so many such first-time entrepreneurs are all so used to dealing in cash that their business practices have to be modified in the new system. That will be a challenge and they will take time to rework their attitudes towards money and its accounting.

It is not unusual for many doctors, lawyers, accountants, hotels, restaurants, traders, jewellers, small businesses, shops, establishments, service providers, small-scale manufacturers, and so many such unlisted businesses to have two books of accounts. Many systematically under report revenue, using cash as the preferred medium that keeps their earnings away from the taxman. They also encourage customers to pay in cash, citing higher cost if taxes were added.

Many see themselves as hardworking business people and professionals, but they are tax evaders in practice. The thriving cash economy was something most took for granted. The argument that their hardearned money cannot be shared with the government is illegal, unlawful and indefensible. They have to begin cleaning up their finance and accounts. The law enables them to account for expenses, offers reasonable tax planning avenues, and they can bring their effective tax outgo down working within the framework of law. They have to switch from tax evasion to tax planning.

The benefits are immense. The revenue that is accounted for is in their books, enabling them to expand business with investments from other venture capitalists; they will be eligible for higher working capital limits from their banks; they will be able to borrow at lower rates based on the strength of their books; and they will be able to create assets that can be used in the future; they can pass on assets to heirs and others without any complications. If professionals and entrepreneurs are indeed smart business people, they will turn the leaf in the interest of their own business and wealth.

The rich, the super-rich and the obscenely and illegally rich including politicians are the class that is unable to make concrete future plans. The relatively small segment that has employed accountants and auditors, set up formal businesses with formal practices, and is therefore already tax compliant, is the one breathing easy. For the rest, not only has the demonetisation hit the cash hoards and sources of fresh cash but the uncertainty of the future and the fate of investments is a matter of grave concern. The looming threat of fresh government assault on their ill-gotten wealth and the lack of sympathy for their plight makes things worse. Without firm government action and policy on how these classes will conduct their affairs in future, the government risks its objectives being overturned by the devious ways of this class.

As a poor country that is chronically short of money for development, we cannot afford a system where a set of individuals decides to allocate large amounts of money to luxurious purchases. Demonetisation has delivered shock and awe. How the various segments align to the objective of eradicating black money will depend on government action and policy, the road map for which should be in the forthcoming Budget. Mainstreaming the earnings, collecting all taxes, and deploying the proceeds purposefully are all huge tasks in themselves. We have just begun and have a long road ahead.

(DISCLAIMER: Views expressed above are the author's own.)

Source: Economic TImes

Smart things to know about taxation of investment under PMGKY

1. Through the proposed Pradhan Mantri Garib Kalyan Yojana (PMGKY), the government wants to give people an opportunity to declare undisclosed income and pay taxes with penalties.

2. This scheme will allow people to deposit previously untaxed money by paying 50% of the total amount: 30% as tax and 10% as penalty on the undisclosed income, as well as 33% of the taxed amount as cess.

3. The declarant will also have to deposit 25% of undisclosed income in a deposit scheme to be notified by the RBI under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’.

4. If the declarant refuses the option of using the government deposit scheme, 85% of the amount will be deducted as taxes and penalties.

5. For money that is found in raids, taxes and penalties of nearly 90% of the amount will be levied, leaving a mere 10% with the owner.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

Source: Economic TImes

Here's how your employer can help you save tax

By Sudhir Kaushik, CFO and co-founder, Taxspanner.com

Over the next few weeks, companies across India will start collecting investment proof from employees to calculate the TDS on their salaries. This statutory obligation has become an annual ritual over time, and most companies treat it as a compliance cost. However, a company with a progressive outlook can easily turn this exercise into a practice to help their employees and boost employee loyalty.

Taxspanner analysed the income and tax details of salaried taxpayers and found that a vast majority pay a very high tax. This is either because they are unaware of tax rules, or their salary structure is not very tax friendly. As a result, they are not able to optimise their tax outgo and end up paying more than they should.

The perils of self-medicating
Our analysis showed that a lot of taxpayers manage their tax affairs themselves, without seeking help from an expert. Just as self-medicating is not advisable when we fall ill, the do-it-yourself approach can prove to be very costly for salaried people. We noticed that they missed out on several deductions and exemptions that a professional tax advisor could have saved for them.

Taxpayers tend to underestimate the real cost of paying too much tax. Even a modest saving of Rs 3,000 a month, if invested for retirement, can grow to a massive Rs 10.3 lakh in 10 years. In 20 years, it would become Rs 50.9 lakh and in 30 years it would reach Rs 1.95 crore. So, poor tax planning could be robbing you of a comfortable retirement. The bigger problem is that a person who does not fully understand the tax laws or hasn’t updated his knowledge with the new regulations can make errors in his returns. Some errors can even lead to a tax notice, penalties and, in extreme cases, even prosecution. On the other hand, a tax professional will offer accurate and updated advice based on latest rules and regulations.

What companies can do
Companies are forever trying to attract talent by offering the best pay packages. Indeed, apart from job profile and growth prospects, the financial part of the package is critical for employees. This is why some people even switch jobs for a marginal hike. However, many companies believe they can do little beyond offering a high CTC package. This is a misconception. Instead of spending crores on trying to acquire and retain talent, employers can redesign their pay packages so that the tax liability of the individual is reduced to the minimum. They can also arrange for tax planning sessions for employees where professionals counsel them on the best ways to reduce their tax liability. Some of these measures cost virtually nothing while others add barely a fraction to the total employee cost. But they can reduce the enormous waste of hard earned money that is deducted as TDS from the salaries of their employees every month.

Take for example, the inclusion of New Pension Scheme (NPS) benefit in the CTC structure. Up to 10% of the basic salary of an individual is fully tax deductible if put in the NPS under Section 80CCD(2). This means 10% of the basic salary becomes tax free if the company offers this benefit to its employees. This way, someone in the 30% tax bracket can effectively save tax equal to 3% of his basic salary, which is no small feat. For the company, this step requires minimal additional expense because the NPS Trust manages the entire back-end and record keeping.

Some companies don’t want to tinker with the pay packages or get involved in activities that are not part of their core operations. This is a blinkered view. Instead of letting them suffer a high TDS, companies should step in and help their employees optimise their tax.

Where to begin?
Employees submit the declaration of tax planning investments around June or July and give proof of these tax-saving investments around December-January. Their declaration of intent and proof of investments will show where they are going wrong and how the problems can be fixed.

It’s not that the tax rate in India is high or that there are not enough investment opportunities. The problem has more to do with misconceived notions and ignorance about tax planning. Some people may not be even aware of the various deductions they can claim or the exemptions they are eligible for. Others may know about tax matters but could be going wrong in their investment choices. So, this is the best time for a company to engage with its employees and help them optimise their tax planning.

Tax optimisation, not tax evasion
It is important to note that the tax saving and optimisation strategies are not in contravention of the law. Tax is the price we pay for civilised society. Indeed, the revenue collected by the government is the lifeblood of the nation.

We believe that paying tax is good, but that saving tax is better, and saving tax with expert guidance to reach one’s goals is best. So, the tax saving suggestions offered by tax experts should not be construed as attempts to evade tax.

(DISCLAIMER: Views expressed above are the author's own.)

Source: Economic TImes

How Mumbai based Mukherjee can reduce tax outgo by 34%

Ashutosh Mukherjee, 43, pays a very high tax because his compensation package is not very tax friendly. The good part is that his company lets its employees tweak their salary structure. Taxspanner estimates that the Mumbai based professional can reduce his tax by nearly 35% if he puts more into the NPS.

But his take home pay will also come down. Mukherjee should start by asking his company to put 10% of his basic pay in the NPS under Section 80CCD(2d). If Rs 49,092 is put in the NPS every year, his tax will reduce by nearly Rs 10,000. But this will reduce his take-home pay by almost Rs 3,250 per month. The NPS can reduce his tax further if Mukherjee puts Rs 50,000 in the scheme under Section 80CCD(1b). This will cut his tax by another Rs 10,300. Mukherjee should reduce the contribution to the PPF by Rs 50,000. The PPF offers only 8% returns and could see a further rate cut in December this year.

On the other hand, the NPS has given terrific returns due to the bond rally. Given his age, Mukherjee should allocate 33% in all three fund categories. He can also opt for the moderate lifecycle fund of the NPS, in which the exposure to equity comes down by 2% every year.

Income from employer
(All figures are in Rs)

(By Sudhir Kaushik of Taxspanner.com)

Source: Economic TImes