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DIRECT TAXES
1. DISALLOWANCE OF EXPENDITURE FOR NON-COMPLIANCE OF TDS
PROVISIONS
TDS provisions of Sec.40a(ia) disallowed the expenditure for delayed or no
compliance of TDS. Because of this provision legitimate business expenditure is
likely to be disallowed and an artificial increased income is liable to Income Tax.
The provision may be withdrawn, since there are other adequate provisions to
take care of non-compliance of TDS.
The provisions Sec.40a (ia) can be amended in such a way that if tax is deducted
before filing ‘return of income’, the relevant expenditure may be allowed,
irrespective of date of payment.
2. INCREASE IN THE RATE OF
ASSESSMENT YEAR 2011-2012
DEPRECIATION
FROM
THE
In the 2005-06 Union Budget, depreciation on Plant & Machinery was reduced
from 25% to 15%. This assumes a life span of nearly 25 years for such Plant &
Machinery. However machinery used in Garment Industry are susceptible for
frequent technological changes. Because of severe competition in export trade, it
is very essential that the used machines are replaced by state of art machinery.
The normal useful life considering obsolescence in Garment Industry is only 4
years. Under the circumstances, we request to enhance the depreciation rate
from the 15% to previous level of 25%. Otherwise, at least for Garment Sector,
the rate of depreciation may be fixed at 25%.
3. WAIVER OF TDS ON FOREIGN AGENCY COMMISSION
The Income Tax Department is currently asking exporting units to pay TDS on
payments made for Foreign Agency Commission, though the service is provided
outside India. There is an anomaly in the interpretation of Section of the IT Act.
As the services are provided outside India, we request to give waiver of TDS on
Foreign Agency Commission.
4. REFUNDS
Refunds arise mainly because of TDS provisions over which the assessee has no
control. The deductor commits various types of errors and mistakes with the
result the deductee is put to hardship. Even Government agencies such as
Banks, Post Office, Electricity Board do not adhere to the procedure with regard
to TDS. The common mistakes committed by the deductors are illustrated below:
i.
Wrong entry of PAN by way of clerical, typographical error.
ii.
Belated deduction.
iii.
Non-filing or incorrect filing of TDS returns through electronic media.
iv.
Wrong rates applied to deduct tax.
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v.
Rates approved by the Assessing Officer under Section 197 is not properly
updated.
vi.
Even if the deductee approaches deductor for rectification of such returns,
invariably such requests are not attended to and/or ignored.
Similarly there are clerical errors in updating advance tax payments also.
Unless there is absolute co-ordination among the deductor, deductee and the
department, it is very difficult to get the required rectification put through.
This cumbersome process can be reviewed and simple procedure introduced.
After a return is processed at CPC any correction is to be made only by the
Assessing Officer concerned. Invariably they plead lack of infrastructure
including lack of adequate ministerial staff and the work load of the Assessing
Officers.
The refund has to be given within a time frame.
5. TDS
The threshold limit prescribed under various TDS provisions are outdated and / or
not in tune with the present inflationary trend. The amounts may be re-fixed at a
very substantial higher amounts.
There should be an option to an assesse either to allow the deductor to deduct
tax or to pay taxes by himself as advance tax. In view of the stringent provisions
regarding levy of interest for short payment of advance tax, any apprehension
about an assessee not paying his advance tax is not well founded. An assessee
can opt to pay advance tax and in such case, he can file a declaration with the
deductor directing him not to deduct any tax while making payments referred to in
the Act by furnishing PAN / proof of filing Return of Income.
As a matter of safety to the revenue, where a person files such a declaration and
still does not pay advance tax as well he can be suitably penalized.
6. CAPITAL GAIN
While computing Capital Gain on sale of immovable properties, value fixed by the
State Government for stamp duty purposes is adopted. This method is totally
unscientific. Adoption of guideline value can be disputed by an assessee with a
request to refer the valuation to Departmental Valuation Officer.
There is no clear provision as to how this mechanism will workout at the time of
filing the return since there is no provision in the electronic returns about such a
request by an assessee.
Computing Capital Gain on the basis of notional guideline value in case of
transfer for inadequate consideration results in undue hardship to such transfers
for valid reasons.
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Valid and genuine transfer of property for inadequate consideration must be
taken out of the purview of the provision of Section 50C.
7. ACCOUNTABILITY OF THE ASSESSING OFFICER
To avoid high pitched assessment, dismissal of appeals by First Appellate
Authority without proper application of mind, there should be an accountability on
such officers and if ultimately at a higher forum such high pitched assessment are
drastically reduced, the officers who passed the original orders must be made to
explain their action and any adverse comment in this connection must be
informed to them.
8. PRESUMPTIVE ASSESSMENT
In case of persons carrying on small business, the provision require either 8% of
turnover as profits or a lower figure provided the books are subjected to audit.
This 8% as net profit is substantially very high in case of certain small business
who cannot afford the cost of getting their accounts audited. List of such trades
can be identified after public debate and necessary exemption provisions
incorporated in Income-tax Rules.
9. SPECULATIVE TRANSACTION
Where there is no delivery and a contract is settled in such circumstances, the
resultant loss is termed as speculative loss.
In case of futures and options in commodities, foreign exchange, interest rates
etc., delivery is not possible.
In such cases, just as the exemption provision for derivative transactions in case
of stocks and shares, similar provisions may be introduced for commodities,
stocks, interest rates etc., provided such transactions are routed through
exchanges now setup by the Government.
Such derivative transactions may be held to be non-speculative if transacted
through banks and exchanges subject to the regulations of the Regulating
Authority.
10. SEARCH AND SEIZURE
Where cash or valuables including bank balances are seized in the course of
search operations, the affected assessee must be permitted to request the
department to appropriate such seized assets towards any tax liability for any of
the six assessment years for which reassessment proceedings are initiated after
such search operations. This adjustment need not wait till the completion of
reassessment proceedings consequent to the search operations.
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11. INTEREST
In complex cases involving litigation in various forums the interest liability accrues
till the date of the completion of the proceedings. To illustrate, an assessee
getting a favourable order before the High Court but finally loses his claim before
the Supreme Court in an appeal filed by the department, interest runs from the
original date to the date the Supreme Court order is given effect to.
In all such cases instead of going through the waiver route the Act itself must
contain a suitable cap on such interest liability.
12. REVENUE AUDIT OBJECTIONS
Even in genuine cases, audit objections are not withdrawn in time even though
the Income-tax Authorities including higher authorities are of bonafide view that
the audit objection is wrong. In all such cases remedial actions is taken and the
assessments revised to be in tune with the audit objection and prolonged
litigation ensues.
In all such cases where the audit objections are not withdrawn within a
reasonable time after the CCIT/CIT are of the opinion that such objections are
not tenable, the audit objection must be treated as withdrawn and remedial
action shall not be initiated.
The concerned Commissioner or CCIT being the highest authorities in the
hierarchy of the department in assessment proceedings shall be given this power
and discretion in the Act itself.
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INDIRECT TAXES
1. ZERO CUSTOMS DUTY FOR IMPORT OF MANMADE FIBRES
Currently, the manmade fibers attract 5% basic customs duty. We request the
Government to remove the customs duty for import of manmade fiber from 5% to
0% like the reduction of Customs duty for import of cotton to zero level done by
the Government, despite 40 million farmers involved in cotton production
2. ZERO CUSTOMS DUTY FOR MACHINERY
The special machinery intended to manufacture synthetic garments and also
processing of fibres have to be permitted to import under Zero Percent Duty so
that more entrepreneurs make investment to manufacture synthetic garments,
which has a major market globally.
3. ZERO EXCISE DUTY FOR MANMADE FIBRES
The excise duty for Manmade Fibre should be made it as zero which will help to
increase the usage of manmade fibres and the production of garments which will
ultimately help to increase the export of manmade fibre garments, as the global
market is available for these garments throughout the year.
4. REQUISITION
GARMENTS
TO
REMOVE
EXCISE
DUTY
FOR
BRANDED
In the last Budget, excise duty at the rate of 10% was imposed on Readymade
Garments sold under a brand name in the domestic market and 45% of the retail
sale price attract 10% excise duty.
As per the recent agreement with
Bangladesh, the garments imported from Bangladesh do not attract any customs
duty and also their prices are lower than the Indian products due to various
factors. Considering the employment and also to face the competition from the
Bangladesh products, we request to remove the excise duty imposed on branded
readymade garments.
5. GOODS AND SERVICE TAX (GST)
We request to introduce GST in this budget to enhance our competitiveness in
the global market.
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SERVICE TAX
The Ministry of Finance issued a notification, dated 3rd January 2012 to provide
Average Rates of Service Tax Refund, to implement the simplified scheme for the
refund of service tax paid on services used for export of goods on the lines of
drawback of duties. The schedule of rate for the articles placed under Chapter61 (articles of apparel and clothing accessories, knitted or crocheted items) is
0.15% of the total FOB value of export goods. We request to the increase the
rate from 0.15% to 0.50% to fully compensate the service tax paid.
(Addition of more services like Insurance Premium paid, Bank Charges,
Cargo Handling Services, Telephone etc., in the specified list of service tax
refund notification no.17/2009.)
1. EXEMPTION OF SERVICE TAX ON ECGC PREMIUM
As per Notification No.41/2007-Service Tax dated 6th October, 2007 Section
65(105)(d), Services provided to an exporter by an insurer, including a re-insurer
carrying on general insurance business in relation to insurance of said goods is
refundable provided document issued by the insurer, including re-insurer, for
payment of insurance premium shall be specific to export goods and shall be in
the name of the exporter.
We request to exempt payment of service tax for the premium paid to ECGC
either through banks or directly for insurance of export cargo to reduce
paperwork / compliance cost.
ECGC Cover
ECGC Premium
Bank Comm.
Total cost to exporters
75%
0.80%
0.45%
1.25%
90%
0.95%
0.35%
1.30%
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BANKS & FINANCE
1. SEPARATE CHAPTER FOR EXPORT SECTOR:
In view of protecting the export sector from increasing credit rates, a separate
chapter for export sector is required in Monterey Policy and the export sector
should be delinked with the base rate system being followed by the banks. As
the base rate is the minimum lending rate, pre shipment and post shipment
export credit in Indian Rupee has to be given at the Base Rate itself.
Till a separate chapter for export is announced, the Bank credit rate given to
exporters may be fixed at 7.5% as the interest rates prevailing in our competing
Countries are lower than our banks rates.
2. THE RUPEE EXPORT CREDIT INTEREST RATE SUBVENTION
SCHEME
The 2% Interest Subvention Scheme in pre and post shipment credit is available
for specified export sectors, including knitwear sector up to 31.3.2012.
As our competing countries are keeping the Bank interest rate at lower level, we
request to extend 2% interest subvention on packing credits for another two
years and should be extended to entire apparel export.
3. EXPORT CREDIT IN FOREIGN CURRENCY
We request that the exporting units in all categories should be given foreign
currency credit, which is not given by the banks and this measure will help to
reduce the cost of credit considerably.
4. LIBOR LINKED ECB FUNDING FOR MSME EXPORTS
Currently, ECB window is not available to MSME’s. We request to setup an ECB
window for MSME export sector given the criticality of the existing global market
to retain the competitive edge after making necessary amendments in the
respective RBI Circulars.
Maturity period
Up to 1 year
All-in-cost ceilings over 6 months
LIBOR*
75 bps
More than 1 year but less than 3 years
125 bps
*
for the respective currency of borrowing or applicable benchmark.
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5. TRANSACTION COSTS IN BANKING CHANNEL ADDING TO THE
OVERHEADS SERVICE CHARGES ADDING TO THE OVERHEADS
Banks are charging a series of service charges like processing charges for
annual renewal of limits, enhancement of limits, negotiation charges, booking
charges, etc. which continue to add to the cost of credit. The most recent is the
service charge being levied by a foreign bank (NOSTRO Account) to a
correspondent bank for a inter-bank transfer in which case, some exporters are
being asked to pay service tax on the services rendered by the foreign bank on
foreign soil. We request to remove this charges.
6. HIGH MARGINS FOR FORWARD CONTRACTS
The Rupee has appreciated around 6% since August, 2010 and in order to
safeguard themselves, exporters are taking forward cover. However, banks are
levying service charges/ margins as high as 3% to 5% adding to the transaction
costs.
7. PROCESSING CHARGES FOR ANNUAL RENEWAL OF LIMITS
Banks are charging processing charges of Rs.400 per lakhs subject to a
maximum of Rs.20 lakhs on renewal of limits. If an exporter goes for renewal of
a limit of Rs.50 crore, he has to pay Rs.20 lakhs as processing charges. Banks
heavily rely on the exporting units past track record in approving or disapproving
such limits. Therefore, there is no reason to impose such high charges and they
may be reduced to Rs.100 per lakhs subject to a ceiling of Rs.5 lakhs. Moreover,
these charges should only be levied on grant of a new limit and not on its
renewal.
8. CROSS CURRENCY BOOKING
Banks are presently levying their own mark up on the margins between the spot
and forward rate for quoting forward quotation. As a result, a bank earns 4 bips
(0.0004) on each transaction of a dollar be it buying or selling which adds on to 8
bips [1 Euro = 1.3600 USD +/- 0.004 while buying/selling in a Euro/USD
transaction]. It is suggested that 1 bip per transaction may be charged by banks
in order to cut down the transaction cost in case of cross currency transactions.
9. NEGOTIATION CHARGES
Banks are levying 0.15% as the negotiation charges while negotiating the
documents which need to be reduced to 0.05%.
10. BOOKING CHARGES
Banks are levying Rs.750/- as booking charges and Rs.750/- as cancellation
charges against every booking of FOREX with them. These charges need to be
lowered to Rs.250/- from Rs.750/-.
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11. COLLATERAL AND GUARANTEES
While RBI does not insist on collateral in case of irrevocable L/C but banks
demand collateral security from the borrower from 50% to 75% of the advance
required.
12. REVIEW OF SYSTEM OF COLLATERALS AND GUARANTEES
Banks insist on abnormally higher collateral of 15% to 20% by way of cash or
immovable property. Increases in valuations by bank approved valuers are not
taken into account and where taken valuations by valuers are further discounted
by 15% for computational purposes.
13. GUARANTEE CHARGES COLLECTED BY BANKS
The exporters are allowed to import capital goods at lower rate of import duty
under EPCG Scheme of Foreign Trade Policy by under taking to export goods
equivalent to eight times the import duty saved in the next eight years to come.
For this purpose the JDGFT issues licence after obtaining the Bank Guarantee.
The bank issues this Bank Guarantee at 3% p.a for an amount not over 75% of
the "Guarantee Amount" the balance of 25% is to be arranged by the exporter by
way of pledging Fixed Deposit Receipts with the bank. Now if the exporter takes
say, 6 years to complete this turn over target, he has to spend 18% of the money
so saved by importing the capital goods.
The bank continues to collect this guarantee charges year after year until it is
cleared by the exporter of course after meeting the export obligation. In view of
this, the banks may be advised to collect guarantee charges of say 3% or less
only once and not every year.
14. REBOOKING OF CANCELLED FORWARD CONTRACT
To arrest the fall in Rupee, RBI have taken measures like Forward Contracts
booked by residents irrespective of the type and tenor of the underlying
exposure, once cancelled, cannot be rebooked. This measure is causing
difficulty to the genuine garment exporters.
We wish to note that garment market is fully dependent on multiple sources and
any slight change in any one of the area will greatly affect the agreed delivery
date with the customer. Understanding the valid requisition of exporter, buyer
used to change the delivery dates. This will lead us to pre-close the contract and
rebook for the agreed new date at new rate.
Considering this problem, the genuine exporters can be permitted for rebooking
of cancelled forward contract.
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OTHER ISSUES
1. DUTY DRAWBACK RATES
The Duty Drawback rate currently given to knitwear and garment sectors is 7.1%
and we request to increase the Duty Drawback Rate by 3%.
2. COMPENSATION TO STATE LEVIES AND TRANSACTION COST
Compensation has to be given to the tune of 3% to the exporters against the
State Levies such as OCTROI, other State Taxes and Transaction cost till the
introduction of GST.
3. TECHNOLOGY UPGRADATION FUND SCHEME (TUFS)
CONTINUATION OF TUF SCHEME DURING THE 12th FIVE YEAR PLAN
The Restructured Technology Upgradation Fund scheme has been approved
only upto 31st March 2012. TUF Scheme has to be extended in 12 th five year
plan also as continuous modernization with state of art machinery is required for
the knitwear sector and processing sector to meet out the buyers requirements.
We wish to note that the working group on textiles and jute has already
recommended for continuation of the scheme during the 12 th five year plan given
the positive benefits of the scheme and the continued need for modernization.
4. REQUISITION FOR 8% INTEREST REIMBURSEMENT PLUS 20%
CAPITAL SUBSIDY TO SYNTHETIC GARMENT MACHINERY UNDER
TUFS
The Interest Subsidy and Capital subsidy under Technology Upgradation Fund
Scheme should be extended for purchase of special machinery intended to
manufacture synthetic garments and processing of fabrics.
The scheme will
have to provide 8% Interest Reimbursement plus 20% Capital Subsidy for
specified machinery required for manufacturing of synthetic garments and
processing of fabrics.
5. REQUISITION FOR 8% INTEREST REIMBURSEMENT PLUS 50%
CAPITAL SUBSIDY TO PROCESSING SECTOR & ETP
As the processing sector is the weakest link in the textile chain, under TUF
scheme the interest reimbursement has to be increased to 8% with the Capital
Subsidy at 50% for processing machinery including Effluent Treatment Plant
(ETP).
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6. PROCESSING PARK
The Government should earmark the places for setting up of stand alone
processing parks near Sea along with Common Effluent Treatment Plants so that
Marine Discharge of treated dye effluent could be carried out without hassles.
As setting up of processing units are costlier and the units are normally carrying
out job work, the government support in financial front is required.
The Government has to build CETPs which will be used by the participating units.
As the Court and Government is insisting for Eco friendly plants, we request to
provide 50% interest subsidy for the loan availed to meet out the requirements of
Land, Building, Machinery and equipments.
The 12th Five Year Plan working group of textiles and apparel has already
recommended for formulation of a integrated processing development plan with
an allocation of Rs.1,500 crores and by allocation of this fund, the industry
requirements could be met and more investment can be attracted in the
processing sector.
7. RE-INCLUSION OF WIND TURBINE GENERATOR UNDER TUFS
The textile Mills and Garment units particularly in Tamil Nadu are installing Wind
Turbine Generators to offset the ever increasing power cost and it is to be noted
that wind Turbine Generator was included under 5% Interest Subsidy TUF
Scheme earlier and all of a sudden it was removed from the purview of the TUF
Scheme. We request the Hon’ble Minister to kindly help for inclusion of the Wind
Turbine Generator again for the benefit of Textile Industry and also for producing
clean energy.
8. DUTY CREDIT SCRIP TO STATUS HOLDERS WHO AVAILED LOAN
UNDER TUF SCHEME
Currently, to accelerate exports and encourage technological upgradation, Duty
Credit Scrip at 1% of the FOB value of past exports is given to status holders,
subject to exclusions of current beneficiaries under TUF scheme.
We request to extend the benefit of Duty Credit Scrip given to status holders who
have availed loan under TUF scheme after the announcement of new Foreign
Trade Policy, with effective from 27th August 2009 to utilize the incentive.
9. REQUISITION TO INCREASE THE INVESTMENT LIMIT OF SME UNITS
The investment limit in Plant and Machinery of SME units should be increased
from the existing Rs.10 crores to Rs.25 crores and thereby the knitwear export
units could increase their competitiveness in the global market.
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10. EXPORT PROMOTION
The Government should provide 5% incentive under Market Linked Focus
Product Scheme for the exports made to other than traditional markets.
Minimum 100 exhibitors are visiting the big fairs like Magic Fair in USA to interact
with the buyers and explore the market and for visiting such kind of fairs, 75% of
cost of expenses of exhibitors has to be supported by the Government.
AEPC should be supported for organizing “Made in India” Fair in the Countries
where the focus market is planned.
11. MARKET DEVELOPMENT FUND FOR TEXTILE MINISTRY
Currently, Market Development Assistance (MDA) scheme is administrated by
Ministry of Commerce and if Rs.1000 crores is exclusively allocated for Textile
Ministry under MDA scheme, then under the monitoring of Textile Ministry, this
fund could be used mainly for participation of the textile and garment exporters in
the International Trade Fairs, attending Buyers Sellers Meets abroad or in India.
Currently, the total export of textile and garment from India is US $ 25 Billion
which could be increased by providing MDA to the exporters.
12. INCENTIVISING /TAX EXEMPTION FOR SALE OF CARBON CREDITS/
WEIGHTED
TAX INCENTIVES FOR CERTIFIED INVESTMENTS
Carbon Credit is an incentive available to the industries reducing CO2 emission
by investing in energy efficient technologies. As such, it is recommended that tax
exemption be given for revenue generated from sale of carbon credits. Further
the cost of putting additional technology for clean development mechanism is
relatively high. Therefore, there is a necessity for giving tax incentives by way of
weighted deduction for all certified investments in such areas like Leed certified
buildings.
This would benefit the nation in terms of creating eco-friendly
environment and earning foreign exchange.
It may be noted that currently exclusions are available for compensation received
under the Montreal Protocol for ozone depleting substances {proviso ii to section
28(va)}. Similar provisions should be introduced for reduction in greenhouse
gases under the Kyoto Protocol.
We request to address the above issues in the Union Budget 2012-13.
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