Mauritius imposed stringent conditions on Mauritius-based companies investing in India

In a bid to allay the Indian government's fears about round tripping, the Financial Services Commission of Mauritius has imposed a stringent set of conditions on Mauritius-based companies investing in India. THE Financial Sevices Commission of Mauritius has imposed a stringent set of conditions on Mauritius-based companies investing in India in a bid to allay fears about round-tripping of funds. The Mauritian government has also warned that licences of entities investing in India would be revoked if they source funds from India.

The move provides a new twist to the lingering debate over allegations of Indian Corporates using the Mauritius route to escape capital gains tax. Mauritius is the top source of foreign direct investment (FDI). During the first seven months of the current financial year, nearly $8 billion of the $18 billion FDI flowing into India came from Mauritius. An annual audit of Mauritius-based entities investing in India has been made mandatory, said Milan J N Meetrabhan, chief executive of the Financial Services Commission of Mauritius. The Indian side has been apprised of the steps taken to check round-tripping , and Mauritius hopes that this will take care of the concerns about tax evasion.

The move is significant since it comes at a time when the government is planning to review all double taxation avoidance treaties to plug loopholes. Also, the direct taxes code which is to replace the I-T Act next year proposes a number of changes in the country's tax laws, including some that will nix the capital gains tax exemption enjoyed by investing through havens.

A Mauritian team headed by Dr Rama Sithanen, vice prime minister and minister of finance and economic empowerment, met FM Pranab Mukherjee on Tuesday. There are concerns and we are addressing them. Mauritius is not a tax haven, the minister said.
Mr Sithanen said that FDI was flowing into India through Mauritius not because of the tax benefit only . There are a number of other countries with more attractive tax treaties with India, but so much investment is not flowing through them. Mauritius is preferred because we have a transparent regulatory system and a sound financial sector, he emphasised. The discussions and analysis taking place after the financial sector meltdown has proved that Mauritius is not a tax haven, the minister said.

He urged Indian companies to tap the vast African market through Mauritius, which provides a competitive investment climate. A new business can be launched with three days. We have a single tax rate of 15% and Indian companies will find it an excellent base for global expansion, he added. The Mauritius government is now seeking to attract Indian investment, especially in sectors like tourism, hospitality, education, ICT, BPO and renewable energy.

 

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Regards

R.L.NARAYANAN

 

Income-tax deduction from salaries during the financial year 2009-2010 under section 192 of the Income-tax act, 1961

 

Highights of CBTD Circular CIRCULAR NO.1/2010

 

 

Method of tax calculation

Payment of tax on non-monetary perquisites by employer

Computation of average income tax

Relief when salary paid in arrear or advance:

Adjustment for excess or shortfall of deduction

TDS on payment of balance under provident fund and superannuation fund:

Persons responsible for deducting tax and their duties

Estimation of income under the head "salaries

Perquisite

Deductions under chapter vi-a of the act

 

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IT Department wants to tax inter-corporate loans given to unrelated companies, but with common shareholders as deemed dividend

The Income Tax (I-T) Department has decided to put an end to the contentious issue of taxation of deemed dividend or inter-company loans given to common shareholders of unrelated companies. The department proposes to amend the I-T Act in this regard.

Inter-company loans, known as ‘deemed dividends’, are used by companies to route dividend in the form of loans to companies which have common shareholders — both in the company giving the loan and the one borrowing it. It is done to avoid paying dividend tax, otherwise paid by the company before it is distributed among shareholders by the I-T rule.


WHAT IS DEEMED DIVIDEND?

* It is dividend given in the form of inter-company loans to avoid dividend distribution tax to be paid by the company distributing dividends

INCOME-TAX ROLE

* Section 10(20) of the Income Tax Act covers loans given in the form of deemed dividend, but only to entities related to dividend distributing company

CONTENTION
* I-T probe reveals that unrelated companies receiving dividend from the distributing company have common shareholders, who would have received dividend anyway

While shareholders of the companies get to use the funds out of the dividend, the amount goes out of the tax ambit. Sources said the company receiving the funds argues, that being a single entity, it is not a shareholder in the company giving the loan. Thus, the loan cannot be termed deemed dividend.

The trigger has been the investigations carried out by the I-T department, which found there were many such cases where companies had been set up by common shareholders, just to route dividend as inter-company loans, said sources.

The I-T department has proposed an amendment to the tax law for allowing taxation of the shareholders of the borrowing company, and not the company itself, since they are the ultimate beneficiary of the proceeds. The amendment has been proposed to inter-corporate loans given to unrelated companies, but with common shareholders, under Section 10(20) of the Income-Tax Act. It allows taxation of deemed dividend, but only if loans are given to related companies or sister concerns of the dividend distributing company.

Officials said the amendment is required to overrule a recent judgment of the appellate tribunal, which ruled that deemed dividend should be taxed in the hands of the borrowing company and not the shareholders since the company is receiving the loan. This, the I-T department views as ‘deemed dividend’. The ruling was given in the case of Intervention Technologies, a life-saving medical device making company.

The I-T department, on the other hand, is of the view that the company giving the loan is basically investing its surplus or profit, which otherwise would have been distributed as dividend. Therefore, the shareholders of the borrowing company should be taxed since they are the users of the loans in the end.

Officials further added that irrespective of whether or not the amendment comes through, the I-T department has decided to conduct assessment of all such incomes where the point of taxation is contentious like deemed dividend.

Under this, in case of deemed dividend, tax assessment would be made not only for the companies, but also for the shareholders.

Experts said that by the principles of taxation, assessments for both are done so as to tax an income when the view of the department differs from that of the appellate authority or the assessee. The difference of view may be on whose hands the income would be taxed or for which year it would be taxed, or about the status of the assessee.

Thus, the assessing officer would charge the income in the hands of two different entities (in this case, the company as well as the shareholders ). Or, it could tax the same entities or persons for two different years. It could also make assessments according to the returns filed by the shareholders and another as per the status which the department deems fit.

Once one assessment is final, the other gets nullified, said the official. Thus the income would get taxed one way or the other.

INDIVIDUAL/HUF/AOP/HUF-IT RATES AY 2010-11

Income Level / Slabs - Male/ HUF/AOI/BOP

1.Where the total income does not exceed Rs.1,60,000/--- NIL
2.exceeds Rs.1,60,000/- but does not exceed Rs.3,00,000/--- 10% of amount exceeding Rs. 1,60,000/-
3.exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/--- 20% of amount exceeding Rs. 3,00,000/ +Rs.14000/-
4.exceeds Rs.5,00,000/--- 30% of amount exceeding Rs. 5,00,000/ +Rs.54000/-


Income Level / Slabs - Women

1.Where the total income does not exceed Rs.1,90,000/--- NIL
2.exceeds Rs.1,90,000/- but does not exceed Rs.3,00,000/--- 10% of amount exceeding Rs. 1,90,000/-
3.exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/--- 20% of amount exceeding
Rs. 3,00,000/ +Rs.11000/-
4.exceeds Rs.5,00,000/--- 30% of amount exceeding
Rs. 5,00,000/ +Rs.51000/-


Income Level / Slabs - Senior Citizen

1.Where the total income does not exceed Rs.2,40,000/--- NIL
2.exceeds Rs.2,40,000/- but does not exceed Rs.3,00,000/--- 10% of amount exceeding
Rs. 2,40,000/-
3.exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/--- 20% of amount exceeding
Rs. 3,00,000/ +Rs.6000/-
4.exceeds Rs.5,00,000/--- 30% of amount exceeding
Rs. 5,00,000/ +Rs.46000/-

Surcharge: The surcharge on Income Tax for Individuals for total income exceeding Rs.10 lacs stands removed.

Education Cess: 3% of the total of Income-tax and Surcharge.

TN Works Contract Tax

Actual Labour Deduction Option
A-1 Option (Levy of VAT on Works Contracts in the hands of the Contractor)
Under the legal option A-1, the VAT is payable on the `Material Value’ of the Contract. The Contractor determines the Material Price after adding Material Cost and Margin to such cost .
The 4% or 12.5% VAT would be applicable on such Material Value /Price, depending upon the classification of such materials (Steel 4%, others 12.5% VAT) in which the property passes to the contractee . In this option A-1, the Contractor can avail full VAT set off / credit of the VAT paid to the local vendors provided he obtains corresponding `Tax Invoices’ from his local vendors. However, in this option the Contractor has to maintain proper books of accounts and the other records to identify the material value of the Contract.
A-1 option is the Best option available since the Contractor levies VAT only on the `Actual Material Value’ of the contract, even though it is litigation prone option.

Option A-2 (Standard Labour Deduction)
(Legal) (levy of VAT in the hands of the Contractor)
Under the legal option A-2, the VAT is payable on the `Material Value’ of the Contract. The Material value is calculated after deducting the `Labour Portion’ from the total contract value / Price.
However, in this option a table is available in the State VAT Act / Rules which shows `Standard Labour portion’ attributed to the various works contracts. The Contractor has to deduct such `Standard Labour portion’ shown in such tables from the total Contract price to arrive at the `Material value’. The Contractor would charge 12.5% VAT, on such material value. Each State has provided the said `Standard Labour’ table , under this option.
In Tamil Nadu- % of Standard deduction towards labour charges from gross bill value are as follows:- Electrical & Structural Contracts-15%, Sanitary Contracts-25%, Dyeing & Clock repairs Contract-50%, All Other Contract-30%
The advantage in this option compare to the A-1 option is that it is litigation free. The Sales Tax Departments would allow the said ` labour portion deductions’ as the same are provided in the VAT Rules itself. Also no identification record has to be maintained by the contractor for the materials used in the contracts. However, the Contractor has to consider both the options A-1 and A2 in the case where the Contractee/ Customer does not get the VAT set off / credit and then selecting the cheaper option.
Like in A-1 option, in A-2 option also, the Contractor gets full credit / set off on the VAT paid on the inputs and the Contractee also gets full set off of the VAT paid provided the said purchases are not in the Negative list of VAT set off / credit.

Option-B -- Composition Tax (Alternative / Non legal option)
( Levy of VAT in the hands of the Contractor )
Option B is the “Composition Tax” option. This is a non legal alternative option, simplier option for those Contractors who cannot maintain the proper Accounts, Record of the material and other portion in their contracts. The contractee / customer prefers this option as small amount of Composition Tax 2% / 4% is payable to the Contractor instead of 12.5% VAT payable in legal options. A-1 and A-2 . However , VAT credit/set off is not be available to them in this option Under the “Composition” option, the Contractor has to pay Composition Tax (VAT) on the total Contract value / price, No deduction of labour is available in this option. Similarly, No VAT set off / Credit is available on the purchases of inputs to the Contractors and the same is not available to the Contractees also. The Rates of Composition Tax differ from state to state. Generally it is 2% (for civil contracts) @ 4% for other Contracts.

In Short, in all the States only the said 3 options (A-1, A-2 and B) are available in the hands of the Contractors for levy of VAT on the local works contract transactions in the VAT system. If no VAT set off/Credit is available to the Contractee / Customer, then the Composition Tax option is the Cheapest since the Rate of Composition Tax is lower than 12.5% VAT. Therefore , if the Contractee / Customer can not avail the VAT set off / Credit in all the three options , then , the VAT / Composition Tax paid to the contractor is the cost to such Contractee /Customer, hence in such cases the Contractor and Contractee should select the Best option available after considering the Actual Figures in all the three options.
The States have provided separate sections / Rules under the respective State VAT Acts for the works contracts transactions which include said three options of levy of VAT , TDS , VAT Credits and Negative lists .


SERVICE TAX
Service Tax is charged @ the rate of 10.3% on 33% of the Gross Bill in option A-2 & Composition Scheme, but service tax input credit cannot be takeb/set off. Whereas under option one, goods supply bill & labour bill are raised separately, hence service tax in payable on the entire labour bill amt.Further service tax input credit can also be taken/set off

TDS
TDS would be deducted by the customer @ the rate of 1.03% or 2.06% as applicable. Assesable Value for the purpose of option A2 & composition scheme is the entire bill value including VAT & Service Tax, provided the single bill value exceeds Rs.20000/- or Rs.50000/- in aggregate for the entire year. Whereas in option A1 since the labour bill is raised separately, TDS is to be deducted on the labour charges amt only inclusive of service tax subject to applicablity of TDS i.e conditions of Rs.20000/- or Rs.50000/- & other conditions