source Business standard and business line updates 22-12-2013

Source  Business Standard

Govts can’t tell India Inc how to spend on CSR, says Pilot

PRESS TRUST OF INDIA New Delhi, 21 December With the new law requiring certain class of companies to spend on CSR efforts, Union Minister Sachin Pilot on Saturday said neither the central nor state governments can tell corporates on how to spend money towards social welfare activities. The new Companies Act, 2013, requires certain class of profitable entities to shell out at least three per cent of their three- year annual average net profit towards corporate social responsibility ( CSR) activities. Pilot, who is at the helm of Corporate Affairs Ministry, which is implementing the legislation, said the ultimate decision on how to spend money towards CSR activities would be with the board of the company. “I am very clear that it cannot be the ministry or the secretary or the state government that will tell you on how to spend the ( CSR) money,” Pilot said at an event here. “We don’t want to be the judge and jury on how to spend the CSR money,” he said. The government is in the process of finalising the new Companies Act. “ We have made sure that environment, ecology, wildlife... all of these have been put as part of areas where companies can spend the money if they wish,” the minister said. Under the Companies Act, 2013, that replaces the nearly six- decade old legislation governing the way corporates function and are regulated in India, profitable companies with a sizeable business would have to spend every year at least two per cent of three- year average profit on CSR works. This would apply to the companies with a turnover of ₹ 1,000 crore and more, or net worth of ₹ 500 crore and more, or net profit of ₹ 5 crore and more. The new rules, which would be applicable from 2014- 15 financial year, also require the companies to set up a CSR committee of their board members, including at least one independent director. Emphasising that the priority is to protect the interest of investors, Pilot said all options are available before the government to deal with the NSEL crisis and its fall out. The Corporate Affairs Minister said the ministry is expected to receive the final report on the issue in the “ next few days”. “All options are available in front of us... Like in company law there are many provisions that can be invoked depending on what the ( final) report says,” Pilot said. National Spot Exchange Ltd ( NSEL) promoted by Jignesh Shah- led Financial Technologies is grappling with ₹ 5,600- crore payment crisis. The Exchange, Financial Technologies, Shah as well as some other group companies are already under the scanner of various authorities. On the NSEL crisis, Pilot said his ministry is also looking at “ fit and proper aspects” of certain entities, adding the government has already taken " enough steps" in this regard. Corporate Affairs Minister Sachin Pilot speaks at 86th Annual General Meeting of Ficci in New Delhi on Saturday. PHOTO: PTI

Withhold TDS when purchasing property from builder PRAMOD ACHUTHAN When I met my friend Ameya Joshi last weekend over coffee, he excitedly informed me that he had recently booked a fourbedroom apartment in an upcoming scheme of a reputed builder. He went on to explain how good a deal he had bagged, both from the builder and the bank financing his loan, and how he had no need to worry at all since the bank had taken full responsibility to disburse the loan instalments to the builder as and when the project was completed over the next couple of years. My tax brain immediately spun into action and I asked him whether he had made any provision to withholding income tax on the payments to be made to the builder. Upon finding that he was completely unaware about this requirement, I went on to explain. Effective June 1, 2013, the income tax rules require the purchaser of any immovable property ( except of agricultural land) of value exceeding ₹ 50 lakh to withhold income tax at the rate of 1 per cent and deposit it with the government at the time of credit or payment of such sum (whichever was earlier) to a seller who was a tax resident of India. This provision was introduced by the government to improve reporting in the real estate sector and to collect income tax at the earliest. Hearing this, Joshi mentioned that since his bank would make direct payment to the builder, he need not worry about this statutory requirement even though the value of his apartment crossed ₹ 50 lakh. Iduly warned him, nevertheless, that the law casts the responsibility on the ‘ transferee’, that is, the buyer, to withhold income tax at source. And that the bank might not always withhold the tax since it was only acting as his disbursing agent. Since, non- deduction of tax at source might attract penalties, it was Joshis duty to ensure that the tax was paid. Seeing that Joshi was turning worried about the number of compliances he would need to undertake, I assured him that the government had already considered this, and that he would not be required to obtain a tax- deduction account number ( TAN) nor to file a quarterly tax withholding statement. Instead, he would simply be required to fill up the requisite challan in Form 26QB and deposit the appropriate tax within seven days from the end of the month in which the amount was deducted. Ifurther explained that in Form 26QB, one needed to indicate relevant particulars such as name, address and PAN of the buyer and seller; particulars of transaction such as date of agreement, value of property, date and amount of tax deducted. The good thing is that the tax so withheld could also be paid electronically by logging onto this website https:// onlineservices. tin. egovnsdl. com/ et axnew/ tdsnontds. jsp, selecting Form 26QB and following the instructions. Ialso asked Joshi to check with his bank whether it would agree to deposit an amount equal to the withholding tax to the Government Treasury on his behalf and release the net instalment due to the seller. Joshi then shot the following questions at me: Is this new provision ( i. e., Section 194- IA of the Act) applicable to agreements entered into prior to June 1, 2013? The new provision applies to agreements entered prior to June 1, 2013 ( where the value of the immovable property is more than ₹ 50 lakh) only for payments made on or after June 1, 2013. The provision is applicable even if the payments to be made on or after June 1, 2013 are less than ₹ 50 lakh, when the overall consideration is more than ₹ 50 lakh. Is the tax needed to be deducted on the entire amount at one time or on payment of instalments? The tax is required to be deducted on earlier payment or credit of such sum to the account of the seller. Thus, in payment by instalment, tax needed to be deducted at the time of every instalment. Is the tax needed to be deducted on the amount paid towards indirect taxes ( such as service tax, VAT, etc)? Conservatively, tax is required to be deducted on the full sale consideration including the indirect tax component. Is there any other provision which needs to be complied with in addition to payment of income tax in Form 26QB? Yes, the purchaser ( of the property) is required to issue to the seller a “ certificate of tax deducted at source” in Form 16B, which can be downloaded from https:// www. tdscpc. gov. in/ after allowing the system about a week from payment in order to process the matter. Of course, one needs, however, to first register on this website. Does this provisions apply to a non- resident Indian purchaser? Yes. It applies to all persons purchasing such property from aresident seller. By the time we had been thoroughly caffeinated, Joshi had come to the conclusion that the procedure would not be too difficult to implement. The author is Tax Partner, Ernst& Young. The views expressed are personal Your financier might not always withhold income tax at source. Ensure you do so TDS RULES [1]Tax- at- source has to be deducted when you make payments to the seller for property worth over ₹ 50 lakh [1]Non- deduction of tax at source when making payments to builders might attract penalties [1]Buyers have to withhold tax at source even when the payment is made through housing finance companies [1]One does not require to have a tax- deduction account number to file taxes, but just has to fill the requisite challan Source  Business line Know your gratuity benefits ANAND KALYANARAMAN Job-hopping can increase your pay, but good old loyalty also has its perks. Stay on with your employer for five years or more, and you are entitled to gratuity when you resign, retire or are retrenched. This monetary reward to be paid by your employer in recognition of your years of service is mandated by the Payment of Gratuity Act. Most establishments employing 10 or more workers fall under the Act. The amount you get as gratuity depends on the number of years you have served and the last drawn monthly salary. Roughly, you get half a month’s Basic and DA for every completed year of service. Here’s the formula to calculate gratuity: (Number of years of service) * (Last drawn monthly Basic and DA) *15/26. So, if you have served 30 years and draw monthly Basic and DA of Rs 20,000 when you leave the job, you get gratuity of Rs 3,46,154 calculated as (30 * 20,000 *15/26). Your employer can choose to pay you more but the maximum amount of gratuity according to the Act cannot exceed Rs 10 lakh. Amount paid above this will be in the nature of ex-gratia — something voluntary and not mandated according to law. If you serve more than six months in the last year of employment, it is considered as a full year of service. For instance, if your tenure is 30 years and 7 months, the years of service for gratuity calculation will be rounded off to 31. But if you serve 30 years and 5 or 6 months, then the number of years of service will be considered as 30. Waiving the rule Going by the book, gratuity is payable only if you have been with the employer for five years or more. But this rule is waived if an employee dies or is disabled. In such cases, gratuity is paid to the nominees or to the employee, even if the tenure is less than 5 years. Even employees not covered under the Payment of Gratuity Act are entitled to gratuity. But in such cases, the formula for gratuity calculation differs. It is computed as the (number of years of service) * (average monthly salary in the last 10 months of employment) * (15/30). This computation makes the gratuity amount lesser than that under the Act. For instance, in the above example, an employee not covered by the Act will be entitled to Rs 3,00,000 as gratuity, calculated as (30 * 20,000 * 15/30). This is Rs 46,154 lower than employees covered under the Act are entitled to. Another difference is that only fully completed years of service are considered in the calculations, and partial service in the last year, even if it in excess of six months, is ignored. For instance, service of 30 years and 7 months, will be considered as 30 years and not 31 years. Another positive is the favourable tax treatment that gratuity receipt enjoys. Tax treatment If you are a government employee, then the entire amount you get is exempt from tax. If you are not a government employee but are covered under the Act, you get tax deduction for an amount which is the lower of the following: a) Actual gratuity received b) 15 days Basic and DA for each completed year of service (according to calculations in the example above) c) Rs 10 lakh Say, in the instance above, your employer paid you gratuity of Rs 5,00,000, which is more than the Rs 3,46,154 actually payable under the law. You will enjoy tax deduction on Rs 3,46,154 and the surplus Rs 1,53,846 will be subject to tax. Note that the total tax deduction on gratuity amounts received, including those from previous employers in earlier years, cannot exceed Rs 10 lakh. Employees not covered under the Payment of Gratuity Act are also entitled to tax deduction on the amount they receive. The deduction rules are similar to those applicable for employees covered by the Act. anand.k@thehindu.co.in (This article was published on December 21, 2013) Keywords: gratuity benefits, job-hopping, stay with your employer, entitled to gratuity, resign, retire, retrenched

Consumer inflation linked bonds finally here

ANAND KALYANARAMAN

BL RESEARCH BUREAU

December 21, 2013:  

The much-anticipated inflation indexed bonds, linked to consumer prices, will be available for sale for a week beginning Monday. Inflation Indexed National Savings Securities - Cumulative, as these bonds are called, seek to protect your savings from price rise, by offering returns over and above inflation at the retail level. Drawbacks on taxation and liquidity fronts dilute the hedge, but the bonds could still merit a place in your portfolio.

The deal: Only retail investors can buy these bonds. The minimum investment size is Rs 5,000. The interest rate is the sum of the prevailing inflation based on the combined consumer price index (CPI) and a fixed rate of 1.5 per cent annually. The inflation rate will be reckoned with a lag of three months, with the September CPI used in December, and so on. Interest on the bonds will not be paid out but compounded on a half-yearly basis. To illustrate, if CPI inflation is 6.67 per cent for six months, add 0.75 per cent to arrive at the interest rate (7.42 per cent). So, an investment of Rs 5,000 in December will earn interest of Rs 371 and stand at Rs 5,371 in June. This in turn will earn interest for the next six months based on the inflation during that period. This continues for 10 years (the bond tenure) when the principal and the compounded interest is get paid back.

Pros & cons: The bond’s unique selling point – that it tracks retail inflation – can come in quite handy, if retail level inflation remains high. In November, CPI-based inflation was 11.24 per cent. At this level, the pre-tax return on the bond works out to nearly 12.75 per cent, far more than rates on long-term bank deposits (9.25 per cent). But if inflation falls, the pre-tax return on the bond could be lower than that on bank fixed deposits.

Note that the tax on interest will also reduce your returns. After taxes, the 12.75 per cent pre-tax return on the bond will fall to 11.4 per cent in the 10 per cent slab, 10.1 per cent in the 20 per cent slab, and 8.8 per cent in the 30 per cent slab. That said, other safe investment options today such as tax-free bonds and bank fixed deposits also do not provide positive real returns (post-tax returns minus inflation). The bonds, however, carry no TDS and tax experts say retail investors can offer their interest income to tax either annually or at the time of maturity.

Liquidity on the bonds is not great either. Premature redemption is allowed after one year for investors above 65 years, and after three years for other investors. But if you redeem early, you will lose half the last payable coupon.

It is critical for your portfolio to beat inflation over the long-term and these bonds provide a partial hedge. The returns are better at lower tax slabs. But the bonds are not useful for regular income seekers. The issue is open till December 31. To invest, approach SBI and its associates, nationalised banks, HDFC Bank, ICICI Bank, Axis Bank and Stock Holding Corporation.

(This article was published on December 21, 2013)

Keywords: inflation indexed bonds, bonds linked to consumer prices, Inflation Indexed National Savings Securities, price rise, inflation, Investment Focus