Apex industry body ASSOCHAM has demanded that 100 per cent deduction should be allowed for corporate social responsibility (CSR) while computing taxable income and since the incurrence of CSR expense is mandatory under the Companies Act, non-allowance of deduction would result in such expense becoming in nature of tax.
ASSOCHAM has urged the Centre to amend the Income Tax law so as not to introduce the general anti avoidance rules (GAAR) from assessment year 2016-17 as India’s economy is neither mature enough to stand up to its exacting standards nor is the tax administration ready to handle such a highly sophisticated instrument.
“If GAAR is introduced at this stage, it will only act as a handle for more harassment of taxpayers, thus making the tax administration even less conducive and more adversarial,” highlighted the ASSOCHAM in a communication addressed to the Revenue Secretary, Mr Shaktikanta Das.
ASSOCHAM has also suggested the Government of not introducing the direct taxes code (DTC) at all as a certain level of stability has been achieved with the present law on income tax and introduction of a fresh law with new concepts and new thoughts in the form of DTC will only unsettle the situation as more time will be spent on understanding it and putting in place the mechanism to administer it.
“The DTC does not have any revolutionary idea that will either expand tax base to a great extent or help in scaling up revenue collection thus, introducing DTC in near future will entail more cost than benefit.”
On the issue of indirect transfer of shares, ASSOCHAM has suggested the Government that retrospective amendments introduced by Finance Act 2012 should be made applicable prospectively with effect from April 1, 2012.
Any expenditure incurred by a company relating to CSR referred to in Section 135 of the Companies Act 2013 is not deemed to be expenditure incurred for business and thus, is not allowed as deduction.
On the issue of payment of minimum alternate tax (MAT) and dividend distribution tax (DDT) by players operating in the special economic zones (SEZs), ASSOCHAM has suggested the Government to restore MAT and DDT related tax exemptions which were earlier enjoyed by SEZ units and developers.
ASSOCHAM has also recommended to recalibrate the previous 10 per cent rate of tax deducted at source (TDS) on royalties/fees for technical services (FTS) as the tax rate of 25 per cent is extremely high and assumes a profit margin of 65 per cent.
“This rate of 25 per cent lends no bargaining strength at the time of negotiations as India in the past has always been giving a rate of 10 per cent in its double taxation avoidance agreements (DTAAs).”
It has also been recommended that the definition of FTS and royalty should specifically exclude payment for any services or royalty for the purpose of use in manufacturing and production services.
ASSOCHAM has also suggested that with a view to provide a level playing field to non-resident payee, the disallowance should be restricted to 30 per cent of the amount of expenditure incurred in case of non-deduction or non-payment of TDS on payments made to non-residents.
Highlighting that the advance pricing agreement (APA) programme which excludes domestic transfer pricing (TP) transactions is discriminatory for Indian companies, ASSOCHAM has pitched for extension of the APA programme to the domestic TP transactions.