FBT abolition positive; disinvestment target low: Jhunjunwala

 Finance Minister Pranab Mukherjee’s budget for 2009-2010 left the market wanting and saw the Sens*x dive nearly 900 points to a low of 

14,019.76 on Monday. 



The finance minister focused more on the “Aam aadmi” by increasing the personal income tax exemption limit by Rs 15,000 from Rs 2.25 lakh to Rs 2.40 lakh for senior citizens, by Rs 10,000 from Rs 1.80 lakh to Rs 1.90 lakh for women tax payers and by similar amount from Rs 1.50 lakh to Rs 1.60 lakh for all other categories of individual taxpayers. Further, he removed the surcharge of 10% on personal income tax. 



However, Mukherjee left corporate tax unchanged. The budget proposed increase in the minimum alternate tax to 15% from 10% of book profit while allowing to carry forward tax credit on MAT to 10 years from 7 years. 



On securities transaction tax, where the market had expected some changes, the finance minister disappointed again by saying only new pension system trust would be exempt from STT. 



On the other hand, he scrapped the fringe benefit tax and commodities transaction tax. 



Big time investor Rakesh Jhunjunwala said the budget had failed to meet market expectations. “With the new government, there were expectations of some policy pronouncements,” Jhunjhunwala said to ET NOW. 



Abolition of FBT was indeed positive news, as Rs 8,000 crore would directly go to India Inc but he felt the disinvestment target of Rs 1,100 crore is very low. 



Mukherjee said the government would encourage divestment of PSUs but maintain 51% stake. He said the government would divest stake in RITES, Cochin Shipyard, TCIL, and that it sought to raised Rs 1120 crore from divestment proceeds. 



“Reforms have led to the progress of the country, but what steps were taken in this budget? Market not disappointed with the tax proposals at all,” Jhunjunwala said, adding that the budget should have given incentive to infrastructure sector. 



“The kind of fillip the market was expecting is missing,” he said.

FBT abolition: Rule 3 of I-T Act to be reviewed

 The Central Board of Direct Taxes (CBDT) is likely to review the erstwhile Rule 3 of the Income Tax rule and will soon come out with a fresh list of perquisites that will be taxable, after Budget 2009-10 abolished the fringe benefit tax. “A list (of perquisites) will be published by the CBDT,” revenue secretary PV Bhide said.

Rule 3 of the IT rule was scrapped when FBT was introduced in Budget 2005-06. The rule listed out norms for valuation of perquisites that were taxable. These included perquisites such as accommodation, cars, personal servants, household amenities, education of wards and free or concessional journeys as well as interest free or concessional loans, holiday expenses and use and transfer of assets.

The finance minister Pranab Mukherjee in the Budget on Monday has proposed abolishing FBT and reverting to the earlier system, perquisites will be taxed at the hand of employees.

As per the proposal, perquisites will be defined by the CBDT. The Budget document however spelled out that employee stock options (Esops) will continue to be taxed as perquisites. The tax liability would be the difference between its fair market value on the day it is vested and exercised.

Service tax on coastal transport raises many a query

 Several issues have to be addressed before the Union Government is in a position to implement its proposal for service tax on the coastal and inland water transport (IWT) services.

First, the rate of the tax. Will it be more than 2.58 per cent currently being charged for the road sector? Or more?

The operators of coastal and IWT services fear that the rate might be higher, as high as 10.3 per cent which is equivalent to the rate being charged for the express industry. What happens to the Government’s avowed policy of promoting low-cost environment-friendly mode of transportation if the fear turns out to be true?

Next, will the proposed tax be extended to passenger services currently being run exclusively by the Government between the mainland and the Andaman & Nicobar/Lakshadweep Islands?

Will not such a step make the services costlier?

Right now, the passenger services are subsidised. Will not the imposition of the proposed tax push up the Government’s subsidy burden? What happens to the cargoes currently being carried in passenger vessels? Will such cargoes also attract service tax?

Or the proposed tax will be applicable to cargoes being carried only in private vessels now accounting for the bulk of supplies of essential items from the mainland and the islands? Will not items such as iron and steel, coal and cement also become costlier in the islands? What happens to the inter-island services run by small operators?

The country has a long coastline of more than 7,500 km. In addition, the Andaman and Nicobar Islands have a coastline of more than 1,900 km and Lakshwadweep more than 130 km?

How many shipping lines are really active on the coastlines ? On the mainland-Andaman sector the number of coastal operators including the government’ own services is less than half a dozen.

The proposed service tax will prove to be yet another straw on the camel’s back.

Direct tax proposals: a heavy baggage

 Amendments made to the Income-tax Act and the Wealth Tax Act are substantial and numerous with the usual quota of amendments overriding judicial precedents on the one hand and extension of deductions and incentives on the other.

The most welcome step is discontinuance of the Fringe Benefits Tax (FBT). The Minimum Alternate Tax (MAT), which should have been dropped like FBT, will, however, continue with enhanced rate at 15 per cent against 10 per cent at present.

There has been a marginal increase in the exemption limit by Rs. 10,000 for all with the smallest class of taxpayers with an annual income of more than Rs. 10 lakh having the largest beneficiary on abolition of surcharge. Cesses will, however, continue.

Leakage of tax is sought to be covered by making gifts other than cash gifts also liable to tax as income by amendment to Sec. 56(2)(vi) of the Act, if received from non-relatives. Sec. 50C, which substitutes guidelines value for apparent consideration, will now be applicable even for deemed transfers like power of attorney sales without registered documents.

Political funding

Direct political funding is made deductible through the medium of electoral trust under Sec. 2(22AAA). Relief under Sec. 10A, 10B, 80IA(4), 80IB(9), weighted deduction under Sec. 35AB are all extended by another year. Capital expenditure for the petroleum and natural gas industry is made deductible under Sec. 35AD. Sec. 80E relating to educational loans is liberalised for graduate classes for specified courses. Interest subsidy granted by the Government to banks should expedite such loans.

The damage done by amendment to Sec. 2(15) defining “charitable purposes” by the Finance Act, 2008, depriving exemption for those with the object of general public utility, but with commercial activities, is now relaxed for those with the object covering preservation of environment including watershed, forests, wildlife or preservation of monuments or places or objects of artistic or historic interest. Many more laudable objects deserved similar exemption.

Limited Liability Partnerships are treated as firm by an amendment to Sec. 2(23), so as to cover this new class of entities.

TDS provisions are amended to make Sec. 194C for contract receipts more rigid, while there is a welcome relaxation in rate of tax for rent under Sec. 194-I. Erratic application of Transfer Pricing Rules is now sought to be met by giving powers to the Central Board of Direct Taxes for making safe harbour rules and by providing a dispute resolving mechanism in respect of international taxation. These steps should encourage entry of foreign capital without present tax hazards. Wealth tax exemption has been raised from Rs. 15 lakh to Rs. 30 lakh.

There are numerous amendments. These amendments could have been brought under an independent Amendment Act for better consideration. While there have been favourable responses to some of the demands of trade and industry, tax administration has been given free hand to make the law even more complicated, so that a promise of new Saral Form make only a mockery of the professed objective of simplification of the income-tax law.

Govt restores FBT burden on employees; cos to save on crores tax, admin hassles

The proposed abolition of the fringe benefit tax (FBT) in the Union Budget 2009-10 is expected to help companies reduce their tax burden by crores of rupees and offset much of the burden from the 5 percentage points increase in the minimum alternate tax (MAT). Most companies, however, are more thrilled that it would save them from the tedious administrative process of maintaining a database of fringe benefits.

However, the FBT -- which, till date, was being paid by companies for fringe benefits such as employee stock options (ESOPs), sweat equity or superannuation funds, telephone, conveyance, club memberships and car allowance -- will now be paid by the employees directly. This was the case earlier too -- prior to FBT being introduced in 2007. Experts are awaiting the draft of the new tax code to determine the extent of the tax burden on employees.

Among the several incidences of FBT, ESOPs and the superannuation fund attract the highest tax rate. Individuals might have to shell out 30 per cent tax on ESOPs. In the case of superannuation contribution by a company beyond Rs 1 lakh, the entire amount is taxed at the rate of 33.9 per cent, including cess and surcharge. However, the burden is lower in case of expenditure incurred by way of gifts to employees or scholarships to employees' children and conveyance and telephone expenses.

It's estimated that the government earns a little over Rs 10,000 crore from FBT alone. So the savings for firms are substantial. Consider this. On an average, Infosys spends about to $1 million (close to Rs 5 crore) in a quarter towards FBT. So the company can incur a saving of Rs 20 crore a year with the abolition of the tax. Infosys, however, stopped giving ESOPs to employees almost 5-6 years back. So the provision to include ESOPs under perquisite tax will not make any difference for the Infy employees. Besides, Infosys contributes up to Rs 1 lakh per employee towards superannuation funds of employees beyond a certain years of experience.

FBT for India’s largest IT firm Tata Consultancy Services (TCS) for the year ended March 31, 2009 was Rs 23 crore. Wipro, too, is estimated to shell out around Rs 20 crore annually on FBT.

However, the administrative hassle was greater say companies. "The financial impact due to the abolition of FBT is not very big, but in terms of administrative hassle this is very big," said V Balakrishnan, chief financial officer of Infosys Technologies, India's second largest software exporter."

"It's not benefit much financially per say, but it's more of an administrative hassle which is gone now with the abolition of FBT. The actual financial benefit is very small", concurred Rajendra Shreemal, VP and Corporate Treasurer, Wipro. He agreed that the employees will now pay taxes for most of the fringe benefits they were getting as part of their perks.

R Chandrasekaran, President and Managing Director, Global Delivery, Cognizant, too welcomed the abolition of FBT "since the administrative hassle involved was very high".

“Most companies pass on the burden of FBT to the employees, thus the abolishing of FBT is a positive move from an employee standpoint. However, it seems the ESOPs will now be taxed as perquisites which is a negative as far as employees are concerned but it does resolve certain issues with relation to double taxation in case of expatriate employees,” said Alok Misra, CFO WNS Global Services. But Farid Kazim, CFO Mastek feels that sale of shares would anyway will be liable for tax, as they are short-term gains.

“The abolition of FBT is nothing but change of incidence as to who will be paying the tax. Earlier it was the employer who was paying it and now it is the employee. I don’t think this is in anyway attractive for employees. Add to this individuals will be taxed for even the superannuation fund,” asserted Sudhir Kapadia, partner Ernst and Young.

Neeru Ahuja, tax partner at Deloitte India, added that the government may have to consider giving ESOPs under the qualified plan which does not entail any tax when exercise the option (since no cash is given). Only capital gains tax will be levied in such cases if the employee holds the stock as a long-term proposition. Such was the case prior to FBT.

“Initially when the government announced abolition of FBT we thought it was complete abolition but it was only after reading the fine print that one realises that it certainly does not make ESOPs a attractive tool to get talent. Moreover, earlier the FBT was arrived as difference of grant price and market price on the day of listing. But now the market price considered will be the prevailing rate on the day of exit,” says Rostow Ravanan, CFO Mindtree.

 No service tax for sub-brokers

The Budget proposal to reduce paperwork for sub-brokers by excluding them from the purview of service tax has cleared the confusion caused by a recent observation made by the Comptroller and Auditor General of India (CAG).

In a recent remark against sub-brokers of Kerala-based Geojith BNP Paribas Financial services, CAG had noted that sub-brokers were not paying service tax even while they were taxable under “Business Auxiliary Services” (Section 65-19 of the Service Tax Rules). Based on this observation, tax authorities had issued orders to several south India-based sub-brokers to pay service tax.

CAG was of the view that sub-brokers were providing services to clients of Geojit and hence, they came under ‘Business Auxiliary Services’ and were liable to pay service tax.

Sub-brokers, however, said this was unfair as contract notes to clients were issued by member-brokers and payments too were received and made by them. In this process, the main broker deducted service tax and paid commission to sub-brokers. So, sub-brokers should not be asked to pay service tax, they argued.

However, just to avoid harassment by tax authorities, sub-brokers in Mumbai paid service tax directly and claimed it later from member-brokers.

This not only increased paperwork but also the administrative cost for tax authorities as there are 40,000 sub-brokers registered with the Securities and Exchange Board of India (Sebi).

“While there would be no revenue implications for brokers on account of this proposal, it would certainly make life more hassle-free for both brokers and tax authorities, and bring down unnecessary cost incurred due to increased paperwork,” said Manoj Desai, a Mumbai-based sub-broker.

 Lawyers' strike over service tax

New Delhi 

July 8, 2009

A day after Union finance minister Pranab Mukherjee proposed getting law firms under the ambit of service tax, lawyers of all five district courts in the capital on Tuesday decided to abstain from work on July 9 as a mark of protest against the move.

"Lawyers of India will not tolerate any attempt by the government to impose service tax on the legal fraternity and shall adopt all peaceful means to oppose such uncalled for and unwarranted taxes on lawyers," the coordination committee of all bar associations of Delhi said in a statement.

As part of the Union Budget, Mukherjee had on Monday proposed imposition of service tax on advice, consultancy, or technical assistance provided in the field of law.

The coordination committee stated that the legal profession could not be considered as trade or business. It was exempted from service tax as it could not be equated with commercial activities and services provided by others for gaining profit, the lawyers body said.

"The government seems to be labouring under the impression that the advocates' profession is a commercial activity. The fact is that the profession is noble and meant to advance promotion of administration of justice," Ved Prakash Sharma, chairman, BCD, said.

 GIFTS TO ATTRACT TAX, THRESHHOLD FOR WEALTH TAX ENHANCED

Individuals receiving shares, jewellery, valuable artefacts or even property valued at over Rs 50,000 as gifts from non-relatives, will have to start paying tax from October 1. The budget has extended the provision to tax cash gifts in the hands of the recipient to all non-cash gifts as well. These will include shares, jewellery, archaeological collections, valuable drawings, paintings or sculptures. If the value of these assets exceeds Rs 50,000, it will be treated as income for the recipient and taxed according to his or her taxslab. Not just this. Realty deals among nonrelatives for “inadeaqute consideration” will also come under the tax net, going by the finance bill 2009. If the property is sold for a song, tax will be imposed on the difference between the state government notified rate and the purchase price. Again, the recipient will have to pay tax. For jewellery or valuable artifacts, received from a non-relative for little or no consideration, a fair market value will be arrived at to determine the tax liability in the hands of the recipient. According to Sunil Talati, practicing Chartered Accountant and former president ICAI, “The new provision has plugged in a major loop-hole in the tax provisions that will prevent tax-evasion . The current provisions were being grossly misused as it was very easy for any person to buy a property and transfer it to another person as gift without having to pay taxes”. The budget has also doubled the limit on the amount that attracts wealth tax. Taxpayers will now have to pay 1% on wealth exceeding Rs 30 lakhs as against Rs 15 lakhs earlier. The provision will come into force from 31st March ‘2010. While this may appear as one of the very few incentives proposed by the finance minister, fact remains that this enhancement would hardly impact anyone. “Wealth tax is one of the most subdued taxes as income tax authorities have no mechanism to track the same. The discontinuation of filing of documents with the returns have made it even more difficult to track the amount of wealth amassed which keeps increasing at a record pace, thanks to the rising prices. In fact, by increasing the threshold, even that handful paying the wealth tax may now fall outside the purview of wealth tax,” he said.

 SERVICE TAX ON LAW FIRMS NOT TO YIELD MUCH

The Centre’s move to bring services provided by law firms under the tax net is unlikely to yield significant revenue for the exchequer. The legal consultancy market today is estimated to be at somewhere between Rs 400 crore and Rs 500 crore and an imposition of service tax would bring in about Rs 50 crore to the government. So far, legal services in the country were outside the ambit of service tax, but the finance minister in his Budget speech on Monday announced to extending service tax to advice, consultancy or technical assistance provided in the field of law. This tax, however, would not be applicable if either the service provider or the service receiver is an individual. Also exempted are services before courts. So, what would be taxed is only advice or opinion. According to experts, though legal consultancy is a huge market, 95 per cent of this would be individuals, while 5 per cent would comprise firms, which means not a significant amount of revenue. The basic idea behind the move to bring legal consultancy firms in the service tax net is to bring consistency and uniformity in all services like auditing. Legal consultancy services are liable to pay service tax across the world. “It is a move on expected lines to broaden the tax base because all services would be liable to tax barring a few essential services when the country moves towards goods and services tax (GST) regime,” said Pratik Jain, executive director, indirect taxes at KPMG. According to some legal experts, the impact of service tax imposition won’t be significant, as the legal consultancy firms form a small minority. Besides, the pressure would be on the consumer of services, like business establishments, on which the firms would pass the burden of tax. A section of legal consultants in the country has opposed the government move to levy service tax on consultancy firms saying that it distinguishes between individual lawyers and law firms. “This is not a positive move,” said Anoop Narayanan, partner at Majmudar & Co International Lawyers. “Firstly, it distinguishes between individual lawyers and law firms. Secondly, law is still regarded as a profession in India, and not a business. Therefore, imposing service tax on law firms will create an additional burden on companies availing legal services,” added Narayanan. According to another Delhi-based legal consultant who didn’t want to be identified, it is the complexities of service tax audit that people want to avoid paying service tax. Moreover, he added that firms would find ways to bypass this tax as individuals service providers and receivers are not being taxed. 

 Forget about loans, focus on your studies

Widening the scope of tax breaks for education loans to include vocational training could well end up making computers and two wheelers more affordable for students. Besides lending for tuition fees, banks are willing to lend towards other incidental expenses under the broad category of education loans.

The country’s largest bank, State Bank of India, for instance, includes expenditures such as purchase of a computer or the cost of a two-wheeler, up to Rs 50,000, under an education loan. Considering that education loans are often cheaper than consumer finance or auto loans, borrowers would do well to keep this in mind.

Until now, it was a small segment of assesses which enjoyed tax breaks on education loans — the likes of those opting for full-time graduate or post-graduate courses. The higher value loans were availed by those pursuing overseas studies. The Budget now expands the scope of Section 80E of the Income Tax Act (deduction on interest paid) to cover education loans in any field, including job-oriented vocational courses, as long as the student has cleared the senior secondary examination. It will also be applicable to those who have cleared the equivalent of senior secondary from any school/board/university recognised by the central or the state government or local authority or any other authority authorised by these entities to do so.

The deduction can also be claimed if the income tax assessee has availed of the loan to finance the education of his child or spouse. Tax breaks are available for the year in which repayment commences and seven subsequent assessment years. The deduction is available only on the interest component and not on the principal. Besides tuition fee that has to be paid to the college, the loan amount can also cover hostel, examination, library and laboratory fees, cost of purchasing books, equipment, uniforms, purchase of computer required for the course, travel expenses or passage money pertaining to overseas courses.

Currently, interest rates for this segment hover around 10-15.75%. Banks typically specify a repayment period of 5-7 years, and the borrower has to start repaying after six months of getting employed or one year after the completion of the course, whichever is earlier. If the loan has been taken by the parent/spouse, he/she can start repaying the loan soon after it is disbursed and claim exemptions accordingly.

Usually, for loans up to Rs 4 lakh, banks do not ask for any security. Loans between Rs 4 lakh and Rs 7.5 lakh may call for collateral in the form of a third-party guarantee. For loans above Rs 7.5 lakh, banks could, as collateral, ask for a suitable tangible asset, like property, government securities, public sector bonds, national savings certificates, life insurance policy, gold, fixed deposits, shares and mutual fund units.

 FBT abolition to help cos save over Rs 2k cr

Companies in the BSE 500 index are expected to save over Rs 2,025 crore this financial year, if the Budget proposal to remove the fringe benefits tax (FBT) is passed by Parliament. Importantly, these companies account for about 90% of the market capitalisation of all listed companies on the bourses.

An ET Intelligence Group analysis shows that the FBT spend by the BSE-500 companies rose from Rs 1,800 crore to Rs 2,025 crore in FY09. The removal of FBT would improve profitability, apart from reducing paper work, for these companies. According to Uttam Prakash Agarwal, president, ICAI, FBT being removed will result in an increase in the net profit of companies, which could now be ploughed back into the business. “Not only would FBT savings lead to increased earnings for the companies, but will also reduce work related to compliance and due diligence,” added Uday Ved, head of tax, KPMG India.

FBT is a tax that is paid by employers on benefits given to employees — this does not form a part of the salary. It taxes a prescribed portion of the expenditure on ‘fringe benefits’, which includes entertainment, festival celebrations, gifts, club memberships and employee stock options (Esops) that companies reward their employees with.

State Bank of India, for instance, paid an FBT of Rs 175 crore in FY09, followed by ONGC (Rs 72 crore) and ICICI Bank (Rs 66 crore). Others, such as Apollo Tyres, Lupin, Cairn India and Pantaloon Retail, paid Rs 15 crore, Rs 15 crore, Rs 11 crore and Rs 6 crore respectively in FY09. For some of these companies, FBT accounted for anywhere between 2-8% of their total employee cost. An improvement in bottom lines is anticipated once FBT is scrapped.

Ramesh Swaminathan, CFO, Lupin, said: “We were expecting Rs 18 crore as FBT for this year. With FBT proposed to be scrapped, it would result in an accretion to the P&L of Lupin.”

The savings from FBT could be used either for expansion of the business or even distributed as dividend. In either case, it would take care of shareholders’ interest, like pushing up the dividend yield, and lay the base for greater growth in business. “The scrapping of FBT will result in a 2-3% drop in tax liability for most companies,” said Vispi T Patel, partner, Economic Law Practice.

According to Parul Jain, senior associate, Nish*th Desai Associates, the elimination of FBT will result in reduction of the effective corporate tax rate for employers, in addition to lower compliance costs. Typically, companies set up dedicated departments to handle the paper work for filing FBT returns.

 MEDIA BIDS ADIEU TO FBT

The media industry has welcomed the removal of the fringe benefit tax. “This had been a major irritant to the service industry at large, so the abolishment is a big relief. If you consider 20-40 per cent of your employer cost was covered, it makes a difference of 1-2 per cent to the topline,” said Mr Maheshwar Peri, Publisher and President, Outlook Group. The Budget also proposes to extend by another six months, till the end of the year, the waiver of 15 per cent agency commission on Directorate of Advertising and Visual Publicity (DAVP) advertisements and a 10 per cent increase in the DAVP rates. This had been announced in February as a special relief to print media. The offer, however, comes with a rider – it’s subject to documentary proof of loss of revenue from non-governmental advertisements. This disqualifies most major papers, says Mr R.K. Agarwal, CFO, Jagran Prakashan. “The abolishment of FBT could result in a rough saving of about Rs 3 crore a year, however, we will be losing some on the service tax on railway freight,” he added. “There was no change in corporate tax otherwise it was a good Budget with a few positives for the industry. The abolishment of FBT, levied on gifting and travel expenses, could result in a tax saving of about Rs 4-5 crore a year,” said Mr Piyush Gupta, Chief Financial Officer, HT Media. The film industry also welcomed the proposal. “Abolishment of FBT is a major boost. During shooting on outdoor locations, film production houses incur huge expenses on account of conveyance, use of hotel, boarding and lodging facilities. And on these costs, we had to pay FBT of about 20 per cent. This was a big burden on us,” said Mr Mukesh Bhatt, Chairman, Vishesh Films. According to Mr Farokh Balsara, Partner & National Leader, Media & Entertainment Practice, Ernst & Young, “The media and entertainment industry is pleased with abolition of FBT and extension of stimulus package to print media till December 2009. However, the joy is short-lived with the MAT being hiked to 15 per cent against 10 per cent. However, the media industry, which has also been affected by the slowdown, was expecting some furthers sops from the Budget. Said Mr Hiren Gada, Director, Shemaroo Entertainment, “The general media sector was expecting some more fiscal benefits to tide over the slowdown and smoothen some operational challenges that the industry is facing.” Removal of FBT will help the media and entertainment sector overall, he added.

 GOVT MAKES QUOTING OF PAN BENEFICIAL FOR DEDUCTEES

The Finance Ministry has come up with an innovative proposal to expand the use of permanent account numbers (PAN) and, thereby, widen the tax base in the country. Budget 2009-10 seeks to amend the income-tax law to specify that tax would be deducted at 20 per cent in all cases where the deductees fail to furnish their PAN. If the PAN is furnished, then the normal rates as specified under the law will apply. Simply put, the 20 per cent rate on tax deducted at source (TDS) will be a deterrent and compel many to obtain and furnish PAN to deductors. Otherwise, it will directly impact their cash flows in terms of higher tax payout at source.

MAY IMPACT NON-RESIDENTS

The proposed change in law will become effective from April 1, 2010. However, this proposal is likely to impact non-residents as they would now be required to register with the tax department and obtain PAN. The Finance Bill 2009 specifies that PAN must be quoted in all applications that non-residents make with the department for obtaining certificates under Section 197 of the Income-Tax Act. “The proposed change will ensure greater tax compliance and bring in more regular taxpayers for the tax department. However, it may pose some hardship for non-residents”, Ms Neeru Ahuja, Tax Partner, Deloitte Haskins & Sells, told Business Line.

ROAD TRANSPORT SECTOR

The proposed change will impact all sectors including the road transport sector. Meanwhile, the All-India Motor Transport Congress (AIMTC) has sought an extension of the date for differential treatment between the complying and non-complying truckers to September 1, 2010.“Several truckers are illiterates….We need some time to make them aware of the provisions,” said Mr J.M. Saxena, Director, AIMTC, while welcoming the move. He added that AIMTC has already written to the Finance Minister for extending the date to September 1, 2010. According to Mr S.P. Singh, Fellow, Indian Foundation of Transport Research and Training, “Government should make it mandatory to put the PAN details of the vehicle owner on the registration certificate.” The idea is to put the onus of having the PAN details of the truck owner on the service user – which could be a goods booking agent, freight forwarder, larger transport company or even an end user – who deducts the tax and deposits it with the Government. In case the PAN details are quoted, the service tax will be lower. “The rate of TDS will be 20 per cent in all cases if PAN is not quoted by the deductee with effect from April 1, 2010,” according to the explanation of the Finance Bill. 

 No service tax on legal outfits working as proprietorships

Only law firms, which are business entities under the Indian Partnership Act or the Limited Liability Partnership Act, will be have to pay service tax on fees charged from corporates

Many legal outfits will not come within the purview of the service tax proposed to be imposed on legal consultancy services as they operate as sole proprietorships, say experts.

“As the service tax will apply on advice provided by a business entity to another business entity, sole proprietorships will not come within the purview of the proposed service tax,” said Diljeet Titus, senior partner of law firm Titus and Co.

Expressing similar opinion, Atul Gupta, member of the ICAI Executive Committee (northern region) said, “as sole proprietorships are not business entities they will not be required to pay service tax. This is a discrepancy and needs to be corrected.”

Many of the legal outfits, which provide consultancy services to corporates that include drafting merger and acquisition agreements, preparing MoUs, rendering advice etc, operate as sole proprietorships.

“Only law firms, which are business entities under the Indian Partnership Act or the Limited Liability Partnership Act, will be have to pay service tax on fees charged from corporates,” said Hemant Batra, lead partner Kaden Boriss.

While proposing to extend the ambit of service tax to cover legal advice and consultancy, finance minister Pranab Mukherjee in his budget speech clarified, “This (service tax) will not be applicable in case the service provider or the service receiver is an individual”.