Not one person filed an online tax return in Lucknow

By Vipin Agnihotri

In an age of Internet, it’s quite surprising that not even a single individual return has been filed online in Lucknow. When The India Street contacted the Income Tax (I-T) department of Lucknow, this fact came into light. It is worth mentioning in this regard that there is a separate assessing officer in the department to look after the individual returns that have been filed online. The 'systems' division of the Lucknow Income Tax department that has a responsibility of handling the data on the same said it has not received any online return so far.

"At this moment of time, we have not come across any instance where an individual has filed the return through online facility”, pointed out one senior official on condition of anonymity.

In terms of statistic, there are around three lakh individual assesses in Lucknow. Generally speaking, this category of tax assesses consists of those who get income from salary, proprietorship and interest.

Interestingly, the version of the Income Tax department negates the claim of lawyers and chartered accountants. Plenty of people filed their returns with the assistance of these professionals this time. “At least five percent of individual returns have been filed electronically this time around,” pointed out Rahul Singhania, chartered accountant in Lucknow.

When asked to comment on official version, Rahul maintained that it is quite tough to give exact figures for individual returns. Whatever be the figures, one thing is for sure it does not portend well for the department, which has ambitious 'online' plans for the future.

According to government officials, people of Lucknow have limited knowledge about computers and they are not too familiar with the technology as well.
Online filing can be defined as the facility where returns can be submitted electronically from home, cybercafe or workplace. But, for that to happen one require a digital signature to authenticate the return form. The pivotal factor here is that large chunk of the assesses in Lucknow do not have digital signatures.

On the other hand, corporates and partnership firms (having income exceeding Rs 40 lakh) that 100 percent returns came online. This is because of the simple reason that online filing is mandatory for both the category.

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Noida and Greater Noida to Increase Circle Rates

By Dr Suvrokamal Dutta

It has come into the notice of The India Street that after Delhi, Gurgaon and Ghaziabad the district administration of Noida and Greater Noida would soon increase their circle rates.

If experts are to be believed, the new circle rates have been proposed to bridge the gap between the prevailing real estate prices and existing circle rates in the sectors.

When The India Street asked district administration in this regard they said: “We expect to get some objections in the initial few weeks. After getting the objections, we will revise the new circle rates. We hope to announce the new circle rates in the third week of August”.

According to sources, circle rates for residential land will witness steeper hike than those for the residential colonies. It is worthwhile pointing that Sectors-44, 18, 26, 27, 58, 62 and Sectors- Alpha, Beta, Gamma, Omicron, Zeta in Greater Noida are likely to witness 10 to 50 percent increase in the existing circle rates.

On the other hand, the new circle rate of industrial area is likely to be hiked on a slab based system. Initial signs are that it may be hiked from Rs 7200 per sq m to the Rs 10,000 per sq m. While institutional circle rate is 25 percent of authority’s fixed price, the revised rate for residential plots is likely to be hiked from Rs 10,500 per sq m to Rs 33,000 per sq m in Greater Noida.

Point to be noted here is that earlier in developed sectors the hike was 33 to 100 percent, which provide advantage to secure the property rights. The current rate of stamp duty is 8 percent of fixed circle rate. The new circle rate is revised on the basis of total number of registration of documentation in last few years.

It is worth mentioning in this regard that the Noida authority has already revised the property rates in recent times and Noida’s property price has hiked up to 55 to 60 percent. Furthermore, after the authority made residential plots costlier by up to 76 percent in all sectors, it is prompting homeowners to either hike rentals or weigh the tempting option of selling the houses in upscale sectors for big profit.

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New Value Added Tax is Going to Hurt Investors and Homebuyers

By Vipin Agnihotri

Even as the Indian government talks of affordable housing, they have come up with the Value Added Tax (VAT) of five percent for sale of flats under construction. This five percent would be levied on the sale price of the flat. In my opinion, the Value Added Tax on sale of under construction units would hurt investors and homebuyers.

It is worthwhile pointing that with this move the poor buyer has to pay a stamp duty of 5 percent. In addition, he will also have to cough up 5 percent more as VAT if he purchases a flat during the construction stage. In other word, he would thus end up paying double taxes on a single purchase transaction.

“The move is a big blow considering the fact that around 90 percent of the flats are booked during the construction stage,” pointed out Reema Sen, real estate expert. When we asked government officials in this regard they said that VAT is applicable on goods involved in construction such as cement, steel and so on.

Most of the housing industry experts feel that the decision to levy 5 percent VAT on property under construction is illogical and perverse. I agree with them because property is an immovable commodity and VAT cannot be charged on it. Generally speaking, it is a burden on the buyer and is a kind of double taxation.

“We expected that the government would reduce stamp duty charges for purchase of flats from 5 percent to 3 percent. Instead, the government has now decided to levy VAT of five percent on sale of flats. We are now forced to transfer the burden to flat purchasers,” pointed out Raghuvar Dayal of Raghu Properties.

There is no doubt in my mind that the 5 percent VAT will definitely have a marginal negative impact on pre-sales as investors may choose not to acquire an asset during the construction or pre-construction stage and expose themselves to a double tax exposure in the bargain.

In theory, there are chances of an MOU being executed between the flat purchaser and the builder, which need not be registered. According to experts, they may then choose to acquire the same asset, once ready for occupation, by paying only the stamp duty component on the sale agreement. This in turn will have a bearing on the liquidity of small-time developers, who normally fund the construction of their projects with the money received from pre sales.

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Indians Should Carefully Examine the Benefits Paying Off Their Home Loans

By Vipin Agnihotri

There is quite a rush among Indians to repay the home loans in view of the increasing interest rates. But the question now arises: Is it the right move? The India Street decided to analyze the whole situation.

In the last one-year, interest rates on home loan have increase substantially. In terms of statistic, the rates have gone up from around 7.5 percent in 2005 to 9 percent in 2006 and further to around 12 percent at present. In my opinion, this has led to rise in the equated monthly installment in the last one-year by around 23 percent and by 37 percent since 2005.

It has come into the notice of The India Street that as the interest rates on home loan has increased; plenty of borrowers are considering pre-paying the loan from their savings. But if experts are to be believed, one should just not rush to withdraw for his savings like provident fund to pre-pay a part of the home loan.

In my opinion, first and foremost you should try to find out the net cost of your home loan after adjusting for tax advantage. Once you are through this step, you should ascertain the return your savings are generating. Theoretically speaking, if the net rate of return of your saving is higher than the net cost of your home loan, you need not retire the loan by dipping in such saving.

On the other side of the coin, if the return from a particular investment of yours is lower than the net cost of home loan, it is recommended that you pre-pay the home loan from such savings. It is worth mentioning in this regard that there is no penalty for pre-paying of your home loan from your savings.

In terms of tax benefit, first you should ascertain the tax benefit that you get because of repayment of the home loan. If you take into account Section 24 of the Income Tax Act, you will realize that you are subjected to a deduction of up to Rs 1,50,000 from your taxable income against the interest payment for your home loan. Similarly, according to Section 80C, your taxable income will get minimized by the principal up to Rs 1 lakh repaid during a year.

All in all, if you have money lying idle in the savings account, where you are earning a return of 3.5 percent you should prepay the home loan from your such savings.

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New Capital Value Based System in Mumbai to iron out the big disparity in property taxes

By Vipin Agnihotri

In an attempt to iron out the big disparity in property taxes in Mumbai, state government is all set to finalize the levy of property tax on the basis of Capital Value Based System (CVS). Initial signs are that few Island city residents may be exempted from the new system, or may get discounts in property tax.

It is worthwhile remembering that the rateable value system, coupled with the Maharashtra Rent Control Act, offers a cushion to age-old residential as well as commercial properties against a realistic hike in property tax. Point to be noted here is that a property tax under the rateable value system is calculated on the basis of yearly rent.

When The India Street analyzed the whole situation, it was revealed that in Mumbai all rental properties have the protection of the Rent Control Act, which has more or less frozen rent to 1940 levels or allowed a maximum hike of 5 percent effective from 2000. According to the existing rateable value system, the island city, which is home to old properties, has to shell out a minimal property tax but the same is exorbitantly high in suburbs. Now after the shift from rateable value to capital value there will be rise in taxes for residents of the island city.

Plenty of experts are of the opinion that in case the state government approves the proposed system of calculating property tax on the basis of market capital values, it is quite mandatory that they revise rates in the Ready Reckoner, as there is a big gap between rates indicated in the present Reckoner and prevailing capital values.

For instance, Ready Reckoner values for areas such as Peddar Road and Malabar Hill are in the range of Rs 14,000 to Rs 21,000. On the other hand, average capital values as per the market for all these areas are around Rs 33,000 per square fit.

In my opinion, the impact of the amendment would be much steeper in South Mumbai properties. As a matter of fact, suburban areas may not see that big a differential between old and new buildings. Furthermore, there must be an area-wise assessment taking into perspective actual land rates, infrastructure and amenities being provided and then tax value should be determined.

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New Service Tax Amendment to Target Wealthy in India

Amendments in service tax protocols: Advantageous to smaller housing societies

By Dr Suvrokamal Dutta

Recent amendments in the service tax protocols will prove advantageous to smaller housing societies. It is worth mentioning in this regard that the Indian government has notified the levying of service tax on only those societies where maintenance charges paid by members exceed Rs 3,000 per month and the overall gross collection of the society is more than Rs 8 lakh per annum.

If experts are to be believed, this has ensured that middle and lower income group societies will be exempted from these taxes, and is definitely beneficial to most societies. However, societies with annual collections exceeding Rs 8 lakh will have to cough up service tax at 12.36 percent.

The pivotal factor here is that both the clauses of a member paying Rs 3,000 per month as maintenance charges and the society’s collection exceeding Rs 8 lakh per annum must be fulfilled for a society to fall in the bracket of service tax. “The society is not liable to file service tax returns if it collects more than Rs 8 lakh per annum, but individual members’ contribution is less than Rs 3000 per month. The new law is in effect from April 1, 2007,” pointed out Rahul Nandan of Bhagyalakshmi housing society.

In my opinion, laws are made for the welfare of the people and one must not doubt its intentions. This law is implemented so as to concentrate on a particular section of society. In terms of statistic, there are more than 23,000 registered housing societies in Mumbai and Thane. Of these over 90 percent of societies charge less than Rs 3,000 for maintenance purposes. This has ensured that more than 90 percent of the societies will be excluded and only very high premium residential projects will file returns.

There is no doubt that smaller societies will be definitely benefited from this amendment since their collection will be less than Rs 8 lakh. By saving this service tax they will be able to use this amount in a better way.

It has come into the notice of The India Street that not many are supporting the concept of including housing societies under taxable services. The argument stems from the fact that a cooperative society is a group of people who are providing services to themselves and not to any secondary party.

Not so long ago, the service tax department opined that payments like water tax and property tax should be exempted from service taxes, but at present, however, transfer fees, donations, property tax and all of which will be accounted for computing the tax are included under the service tax bracket.

High premium residential projects dotting the landscape of South Mumbai and reclamation areas where all amenities and comforts are given for the convenience of the selected flat purchasers in the city will be included in the taxable bracket.

Filing of returns difficult with new ITR forms

By Dr Suvrokamal Dutta

Replacing a single page ‘Saral’ form with ITR forms is set to make filing of returns difficult. The new series of ITR forms, from 1 to 8 is not at all assesses-friendly and voicing the same is Income Tax Bar Association.

Saral was used by all types of assesses except companies. Now, there are different types of forms for different categories of assesses. “Each of these forms have a large number of columns and require much more information pertaining to income sources than what was required earlier,” pointed out OP Tiwari, president of the association.

As per the institute of chartered accountants, Rs 1,000 per hour has been fixed as the fee to be charged by a CA who helps in filling the tax forms. Where Saral used to take five to ten minutes, new forms will take close to 3 hours and the fee will go up accordingly. A common man and a small businessman, who cannot fill it on his own, will be hit hard by all this.

The association demanded that these forms be made optional and Saral should be kept in circulation. This will help the assesses file returns on time and without difficulty. There are currently 3.5 crore assesses, the number has doubled in the last three years or so, and association said, the almost 10 times increase in revenue collection was because of simple forms. But, now these forms would discourage people from filing returns.

The association was also of the opinion that in case of doing away with the documents to be attached with these forms, there will be an increase in corruption as there is no evidence to be attached for corroboration of facts.

The new forms seek detail like cash inflow and outflow transactions, which are something a common man does not necessarily keep track of. “The department at least should have given an year to create awareness on this,” said tax experts.

“The new forms are valid only for an year only, it is nothing but a simple wastage of stationery. Moreover, storing them as information will be difficult,” said another expert from the association. Although new ITR forms are enclosure free, there is a clause, which needs “reading between the lines” as it maintains if you want refund, attach documents and keep them properly with you, said an expert from the association.

While, on one hand finance ministry is going to introduce a new simplified Income Tax code before the end of calendar year 2007, replacing the existing Income Tax Act 1961, why cannot it postpone the introduction of complicated forms, said the association.

Nishith Desai on Strategy, Law and Tax in India Part 1

Nishith Desai's international law firm is a key player in India, specializing in tax law and strategy. His 30-year old company's focus is on globalization of Indian corporations, international listings, M&A transactions, joint ventures and strategic alliances, complex information technology and business-process outsourcing transactions. His company helped set up the Indian offices for Google and Amazon, and it works with various corporations, start-ups and venture capital funds. In Part-I of our interview, Nishith talks about his entertainment practice and the various companies and artists that his company represents, including Amitabh Bachchan, Andrew Lloyd Webber and Disney. Nishith also played a key role in the Mauritius route for venture capital companies doing business in India.

RBI working overtime to minimize liquidity in the face of relentless forex inflows

It has come into the notice that the Reserve Bank of India (RBI) and the government are working on new methods to minimize liquidity in the face of relentless forex inflows without only relying on instruments such as the cash reserve ratio (CRR).

In its recent currency and finance report, released last week, RBI said there is a requirement to explore further instruments or options for liquidity management, particularly in the context of a move towards fuller capital account convertibility.

“The government and RBI are looking at new options to counter liquidity,” pointed out a official at RBI. He also added that RBI would prefer using a ‘series of approaches with existing instruments’ without shutting off any one option completely, the source said.

Theoretically speaking, RBI has number of options to take into account and it can use a combination of measures to tackle forex inflows and liquidity. According to experts, these include diversifying a part of its foreign assets into non-sovereign assets like China has done, enhancing substantially the incremental CRR, go for a freer float of the rupee or even look at a disguised Tobin Tax to discourage the inflow of short-term hot money. It is worthwhile remembering that Tobin Tax is a levy on currency trades across borders to discourage short-term speculation in currencies.

The pivotal factor here is that last month; China’s new state investment agency invested $3 billion of its forex assets in US private equity firm The Blackstone Group. If experts are to be believed, these are unusual times, such unusual options can be looked at. But fact remains that such a proposal is fraught with risk since sovereign funds parked in such vehicles would expose RBI not only to currency risks but also to equity risk. “The list of entities that RBI can invest in can be expanded to accommodate not just sovereign debt but triple-A securities,” pointed out Kadar Khan, noted analyst based at India.

In my opinion, RBI can look at hiking CRR on incremental flows, rather than total deposits, as suggested by SS Tarapore, chairman of the committee on fuller capital account convertibility. In an ideal scenario, incremental CRR prescribes a reserve ratio based on the extent of growth in deposits. “The impact of this is in stemming excess liquidity in banks showing high growth without penalising the entire system,” pointed out official at finance ministry.

While there is no denying the fact that commercial banks are not needed to presently maintain incremental CRR, in the past they were required to maintain a 10% incremental CRR on non-resident deposits to reduce the liquidity created by flow of funds from NRIs. “The option of using dollar swaps to manage liquidity becomes limited as the rupee gains strength. RBI will not close the CRR option. It will look at augmenting its existing instruments to tackle inflows and liquidity, “ pointed out highly placed source at RBI. For instance, a slew of auctions will be conducted this week. This normally does not happen often.

Besides, with a 60% appreciation in the ECB limit from $14 billion to $22 billion in a single year, it significantly contributed to forex inflows. Whatever the options are, the time is now ripe for RBI to experiment, given that inflation is under control at 4.68 percent.

Source: The Economic Times.

PAN to check tax evasion in India

By Vipin Agnihotri

Permanent Account Number (PAN) is fast emerging as a tool for Income Tax department in India to check tax evasions. There are many transactions where quoting of PAN has been made mandatory. And number of economic activities requiring mention of the same is expected to go up.

“These transactions have been added over from time to time and there is always a possibility that new activity will be brought in the fold. PAN is a means to make transactions transparent. It has made the work of the department more focused and made easy zeroing in on people in case of discrepancies,” pointed out Anjani Kumar, Income Tax Commissioner in an exclusive interview with The Indian Street.

Quoting of PAN is essential while buying or selling an immovable property with a value pegged at Rs five lakh and more. Same holds true for sale and purchase of vehicles, as defined in Clause 28 of Section 2 of the Motor Vehicles Act. It, however, does not over two wheelers.

Depositing money also needs a PAN be it a time deposit, exceeding Rs 50,000 with a banking company covered under Banking Regulation Act or a deposit of more than Rs 50,000 in post office savings bank. Payment and deposit in cash exceeding Rs 50,000 and contract of more than a lakh rupees for sale or purchase of securities as defined in Securities Contracts (regulation) needs PAN as well.

Besides, opening an account or applying for credit card with a banking company, applying for telephone connection, paying hotel and restaurants’ bills exceeding Rs 25,000 and paying more than Rs 25,000 for foreign travel also necessitates quoting of PAN.

Apart from this, payment of Rs 50,000 or more- to a mutual fund for purchase of its units, to a company for acquiring shares issued by it, to a company or an institution for acquiring debentures or bonds issued by it or to RBI for acquiring bonds issued by it needs mention of PAN.

“If, somehow, a person does not talk of PAN but successfully transacts, he/she has strict punishment under IT act. And we came to know of same through our central information commission that has annual reports from all dealers, contractors and others involved in economic transactions,” added Kumar.

In case a person does not have a taxable income and hence no PAN, there are forms wherein a person can declare the particulars of transaction specified above. Similarly, minors can quote PAN of parents or guardian. For all those indulging in transaction of any sort involving money, there is no escaping PAN; its need is ever increasing. And happily, getting it is not difficult, given one furnishes the required document relevant to one’s identity and proof of residence and deposits a nominal fee.