India FM rolls back duty on jewellery, holds firm on Vodafone move

New Delhi, May 7 (PTI) Giving in to demands from various sections, The Indian government today rolled back the one per cent excise duty levy on branded or unbranded precious metal jewellery and deferred implementation of tax avoidance rules on foreign investors but left untouched the proposal to tax Vodafone-type acquisition deals retrospectively. Moving the Finance Bill, 2012 for consideration in the Lok Sabha, the lower house of India's Parliament, Finance Minister Pranab Mukherjee raised the threshold limit for tax collection at source (TCS) by sellers on cash purchases of jewellery to Rs 500,000 from Rs 200,000. But the threshold limit for TCS on cash purchase of bullion will be retained at Rs 200,000. Bullion will not include any coin or other articles weighing 10 gms or less. Jewellery traders all over the country had gone on a long strike in protest against the one per cent central excise on branded and unbranded jewellery and delegations had met Mukherjee and Congress party chief Sonia Gandhi demanding its withdrawal. In a bid to augment long-term low cost funds from abroad for the infrastructure sector, Mukherjee extended the lower rate of withholding tax of 5 per cent for funding specific sectors to foreign borrowings to all businesses. This lower rate of tax will also be available for funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement. On General Anti-Avoidance Rules (GAAR) provisions that have been widely opposed by the foreign institutional investors (FIIs), the Minister announced deferring its implementation by one year. They will now apply to income of financial year 2013-14 and subsequent years. Touching on another controversial proposal, the Minister held firm on amending the Income Tax Act with retrospective effect to tax capital gains on sale of assets in India through indirect transfers abroad, an apparent reference to Vodafone-type deals. However, he gave an assurance that clarificatory amendments would not override Double Taxation Avoidance Agreement (DTAA). The Minister said the issue has been debated intensely in the country and outside and he would like to confirm that clarificatory amendments do not override the provisions of the Double Taxation Avoidance Agreements (DTAAs) with 82 countries. "It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA", Mukherjee said. In another message aimed at mollifying business concerns, he said the retrospective amendments now under the consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalised. "I have asked the Central Board of Direct Taxes (CBDT) to issue a policy circular to clearly state this position after the passage of the Finance Bill," he said. On the GAAR provisions, Mukherjee also provided some sops when he said it would be amended to remove the onus of proof entirely from the tax payer to the revenue department before any action can be initiated under it. The government would also induct an independent member in the GAAR approving panel to ensure objectivity and transparency. It would also provide that any tax payer, resident or non-resident, can approach the Authority for Advance Ruling (AAR) for a ruling as to whether an arrangement to be undertaken is permissible or not under the GAAR provisions. In order to encourage foreign investment, Mukherjee proposed to give parity to non-resident investors including private equity investors with FIIs by bringing down the long term capital gains tax from 20 per cent to 10 per cent. To deepen the capital market through listing of companies, he proposed to extend the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer. The Minister announced withdrawal of one per cent levy of Tax Deduction at Source (TDS) on transfer of immovable property following representations that this would impose an additional compliance burden. The Indian budget for fiscal 2012-13 beginning April 1, 2012 was presented by Mukherjee in Lok Sabha on March 16. After an initial general debate, Parliament went into committee level meetings to discuss the various proposals ministry-wise. With Parliament now back in full sitting, Lok Sabha will now vote on the proposals. The role of Rajya Sabha, the upper house, in the passage of the budget is limited to making suggestions for amendments which the lower house is free to accept or reject. Pending approval of Parliament, a vote on account is taken for incurring expenditure in the initial months of the new fiscal. PTI