SAARC Income Ta Income T x Competent Authorities Meeting 5-6 April, 2011 Kathmandu

Transcription

1 SAARC Income Tax Competent Authorities Meeting 5-6 April, 2011 Kathmandu

2 INDIAN TAX SYSTEM AND TAX ADMINISTRATION -AN OVERVIEW Presentation by:- K. RAMALINGAM

3 Introduction The Indian Income tax Act 1961 enacted toreplace Income tax Act1922. Impact of economic reforms since Reduction in income tax rates from over 90% to 30%. Globalization and liberalization of trade and industry. Increase in FDI & FII inflows and entry of MNCs in several sectors. Emerging economy with average growth rate 8-9% during last 5 years.

4 Introduction - contd - Emerged as key Global Player in Software development & Information Technology. Many Indian companies globalizing li i their business activities. - India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sectors contribute 28.6% and 14.6% respectively - Creation of special Directorates to deal with Non-resident cases in 2001.Transfer Pricing Directorates in 2003 to deal with T. P. Audit - Review of tax treaties and Simplification of tax laws and Introduction ti of new Direct Tax Code.

5 TAX TREATIES IN INDIA The Central Government, acting under Section 90 of the Income Tax Act, has been authorized to enter into DTAAs with other countries. The object of such agreements is to evolve an equitable basis for the allocation of the right to tax different types of income between the 'source' and 'residence' states. Presently, India has 80 Comprehensive DTAAs, 14 Limited DTAAs and 2 TIEAs.

6 Foreign Direct Investment (in ` crores) , 5-6 April, 2011 at Kathmandu

7 Taxes in India Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such the Municipality or the Local Authorities.

8 Direct taxes Central Govt Taxes on income other than agricultural income (IT), Corporation o income Tax (CT), Taxes on net wealth (WT). Taxes on transactions in stock exchanges and futures markets (STT)

9 CENTRAL-INDIRECT TAXES Duties of Customs (imports & exports) Duties of Excise on goods manufactured or produced pouce in India Taxes on the consignment of goods in the course of inter-state trade or commerce Service tax. It is a tax levied on services provided in India.

10 STATE GOVT TAXES Land revenue, Taxes on the sale or purchase of goods, Stamp duty Taxes on agricultural income, Taxes on lands and buildings, Taxes on mineral rights, Taxes on vehicles, Taxes on profession & trade, Taxes on luxuries, Duties of excise on liquor and narcotics. 5-6 April 2011, Kathmandu

11 Ministry of Finance Finance Minister MOS(R) MOS(B&E) Secy(Economic Secy Revenue Secretary Secy(Exp) Secy(Fin Services) Affairs) (Disinvestment) CBDT CBEC SAARC Competent Authorities Meeting, 5-6 April, 2011 at Kathmandu

12 Organizational Setup-Central Taxes GOVT OF INDIA, Ministry of Finance DEPT OF REVENVE, Revenue Secretary Central Board of Direct Taxes Central Board of Excise and Customs Foreign Tax & Tax CCIT/DGIT Similar structure as Research Divn in CBDT CIT/DIT Tax Policy Divn ITA Divn Investigation Divn V&L Divn Admn Divn A&J Divn OT&WT Divn Addl CIT Jt CIT Dy CIT ACIT

13 Organizational Setup-International Taxation Ministry of Finance Revenue Secretary Chairman Central Board of Direct Taxes Joint Secretary (FT & TR) I [C.A. for North America, Europe & Japan] Director (FT & TR) Under Secretary (FT & TR) Joint Secretary (FT & TR) II [C.A. for Rest of the World] Director (FT & TR) Under Secretary (FT & TR) Director General of Income Tax (Intl. Taxation) [Monitoring assessment of Non-resident and Transfer Pricing Unit.] Director of Income Tax, (Intl. Taxation), Delhi, Mumbai, Ban galore, Chennai, Kolkata, Pune & Ahmedabad Director of Income Tax (Transfer Pricing), Delhi Mumbai 13

14 Two main principles p underlie the basis of Taxation: the residence principle - every country has the primary right to tax the world-wide income of persons resident within its territorial jurisdiction. the source principle - under this principle, a country taxes all income earned from sources within its territorial jurisdiction. In the Indian tax system, income of non- residents is taxed on the basis of the source principle.

15 Taxation of different categories of income 1. Income from Salaries 2. Income from House Property 3. Profit & Gain from Business or Profession (a) Royalties (b) Fees for technical services (c) Other profits & gains Income from Capital Gains Other Sources income (a) Interest (b) Dividends (c) Others

16 Self Assessment System Annually, tax payer to assess his income and file his return of income. Due date for filing returns different e for different categories. E.filing system introduced in India. Salaried class: no need to file return if source is salary income only.

17 Methods of selection of cases for Audit The procedure for selection of cases for scrutiny is laid down on year-to-year basis. About 2% returns filed are picked up for auditing/scrutiny. 1. Computer Assisted Scrutiny System (CASS): In this system, special software developed is used for identifying the returns for scrutiny. 2. Compulsory Scrutiny Guidelines: Under these guidelines, various criteria like; search and seizure cases, survey cases, huge refunds cases, value of International ti Transactions, exceeding certain limits, etc are picked up compulsorily for Audit.

18 Methods of selection of cases for Audit 3. Special provision: In addition to the above, DGIT (International Taxation) and DGIT (Exemption) are provided with powers to select cases for scrutiny after recording the reasons, in view of specialized nature of the cases. 4. AIR Data: Selection of cases for scrutiny is also being done on the basis of certain high value information from the Annual Information Returns (AIR) filed by the Third Parties.

19 TAX COLLECTION mechanism Withholding tax at source (TDS) 30-37% Advance tax(3-4 install. per yr) 45-55% Self Assessment tax to be paid before due date for filing of return 6-10% Post- Assessment tax 7-15% Other taxes 5-10%

20 Tax Rates in India Individuals: Upto Rs 1.6 lakhs Nil FY Rs 1.6 to 5 lakhs 10% Rs 5-8 lakhs 20% Above Rs 8 lakhs 30% Companies: Domestic companies 30% + surcharge 5% Foreign companies 40% + surcharge 2%

21 Comparison of direct taxes vs indirect taxes 700, Tax Collections in India 600, ,000 ` in crores 400, , ,000 Direct Taxes Indirect Taxes Total 100,000 - SAARC Competent Authorities Meeting, 5-6 April, 2011 at Kathmandu

22 Transfer Pricing Growing globalization; much higher volume of cross border economic transactions Need for comprehensive Transfer Pricing regime to preserve Tax Base; old section 92 was inadequate and not in line with global practices Sections 92 to 92F introduced in 2001 and Rules 10A to 10E prescribed to supplement the statute

23 Key Concepts of T.P. What is Transfer Price the price charged or paid by a related party for goods or services in a cross border transaction Used as a tool for lowering global tax burden - may involve use of tax haven entities and low tax jurisdictions Arm s Length Principle how unrelated parties would have transacted under identical or similar economic circumstances International Transaction section 92B - at least one party to the transaction to be non-resident very broad definition-purchase, sale, lease, services, lending, or any other transaction having bearing on profits, income, losses or assets Associated Enterprise section 92A(1) - common management, capital or control;

24 Exchange of Information All treaties entered into by India provide for exchange of information. Updating to internationally accepted standards is on. The Joint Secretary (Foreign Tax and Tax Research) is the Competent Authority for the purposes of treaties entered into by India. India has entered into DTAAs with 80 countries and 2 TIEAs. India is a member of Global Forum on Transparency and Exchange of Information on tax matters (Paris)

25 Appeal Structure Supreme Court High Court (substantial question of law) ITAT (Highest fact finding body) CIT(Appeal)

26 Dispute Resolution Panel In view of increasing litigation on international tax and transfer pricing issues DRP with a collegium of 3 Commissioners was constituted in 2009 AO to send draft order to taxpayers py Taxpayer has an option to objection before DRP at initial stage itself DRP functioning in 8 major cities

27 Mutual Agreement Procedure (MAP) The tax treaties entered into by India provide for a dispute resolution mechanism, known as the Mutual Agreement Procedure (MAP). A resident of one country may approach the Competent Authority of the country of which he is resident if he is aggrieved and is of the view that the action of the tax authorities of either one or both of the treaty partner countries is not in accordance with the provisions of the treaty.

28 Authority for Advance Ruling The scheme of advance rulings was introduced by the Finance Act, 1993 Under the scheme, the power of giving advance rulings has been entrusted to an independent adjudicatory body. Advance Ruling, means written opinion or authoritative decision with regard to the tax consequences of a transaction or proposed transaction. The Ruling is binding in nature on the tax authorities and the applicant, in respect of the transaction on which the ruling was given.

29 The way forward Gradual evolution of law and procedure based on experience and judicial interpretation Introduction of simplified New Direct Tax Codeto replace the Income Tax Act,1961 Review of tax treaties to check abuse Strengthening g Exchange of Information Mechanism and entering into TIEAs with other countries. IncomeTax Overseas Units created. Capacity building and Training of officers to the best international practices.

30 SAARC Competent Authorities Meeting, 5-6 April, 2011 at Kathmandu