RBI expected to raise interest rates for 6th time this year

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The Reserve Bank of India is expected to raise interest rates for the sixth time this year on Tuesday to battle stubborn inflation that remains well above its comfort zone of 5-6 per cent.

Most economists expect theReserve Bank of India (RBI) to raise key rates by at least 25 basis points at its quarterly review on Nov. 2 and another quarter percentage point before the fiscal year ends in March.

The RBI’s key lending rate, or the repo rate, at the end of March 2011 is seen at 6.5 per cent, from 6 per cent now, while the reverse repo rate, or borrowing rate, is seen at 5.5 per cent, from 5 per cent now.

The RBI is expected to pause in its tightening cycle after the current fiscal yearends.

Central bank officials have been flagging their discomfort over persistent price pressures, but are expected to follow a slow-but-steady approach towards tightening policy. Deputy governor Subir Gokarn said on Tuesday that surging food prices were structural and will put upward pressure on interest rates.

Headline inflation was in the double-digits for six months through July. The annual wholesale price index for September, the last key data point before the central bank’s Nov. 2 review, rose 8.62 per cent compared with 8.5 per cent in August.

Annual food price inflation eased to 13.75 per cent in mid-October but remains high, in part because of rising demand as incomes increase.

The economy of the world’s second most populous country is on track to grow 8.5 per cent this fiscal year.

Market Impact: The market has largely factored in quarter point rate rises on Tuesday. The focus will be on clues in the RBI’s commentary on further policy action as well as its liquidity outlook.

If there is indication of a pause in tightening, then the benchmark bond yield may ease to around 8.04 per cent from around 8.11 per cent, but if the statement suggests continued worries about inflation, then it could rise to 8.20 per cent.

Changes In Q2 eTDS Statement Filing Requirements :

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NSDL has notified changes in data structure and validations for filing eTDS statement for FY 2010-11. These changes are effective for the forthcoming second quarter statement filing due on Oct 15, 2010. The changes are primarily to give effect to Notification 41.

Changes

100% Valid PANs

Reporting of Transport Contract payments without deduction of TDS

Flagging penal rate deductions

Mandatory Contact details of Deductor

Reporting requirements for Govt Deductors

100% Valid PANs

Existing Rule

At present a minimum percentage of valid PAN is mandatory in any eTDS statement.

This is 95% for Form 24Q and 85% for others

Changed Rule

Form 24Q/26Q/27Q

All deductee records must have valid PANs. Even deductee records where tax has

been deducted at lower/NIL rate must have valid PAN

Only exception is deductee records where tax has been deducted at higher rate u/s

206AA

Form 27EQ

The existing rule of 85% continues

Reporting of Transport Contract payments without deduction of TDS

Finance Act 2009 had made an important change in respect of applicability of TDS on transport contractors. Section 194C was replaced and the following two sub sections provided for non deduction of TDS on transport contractors

(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.

(7) The person responsible for paying or crediting any sum to the person referred to in subsection (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed.

In terms of sub section (7), now such transactions are to be reported in regular eTDS statement.

All such deductions to transport contractors where tax has not been deducted are to be marked “T” in the column Reason for Non-deduction / Lower Deduction, if any in the deductee details.

Penal rate deductions

All deductions where tax has been deducted at hiigher rate in terms of section 206AA are to be marked “C” in the column Reason for Nond eduction / Lower Deduction, if any in the deductee sheet .Such transactions need not have valid PAN.

For records marked with higher rate only below mentioned fields can be updated:

PAN

Amount of payment

Date of payment

Mandatory Contact details of Deductor

In the deductor details , contact details of deductors are provided

Email-Id of deductor / responsible person is now mandatory

Field for mobile number of responsible person has been added.

Any one of the contact details of deductor is mandatory:

Deductor telephone no. along with STD code

Responsible person telephone no. along with STD code

Mobile no. responsible person

Reporting requirements for Govt Deductors

For TDS deposited by book entry, 7 digit number generated by TIN for accepted Form 24G statement to be quoted in BSR code field. This value will be provided by the Accounts Officer to the deductor.

For TDS deposited by book entry, 5 digit number generated by TIN for DDO record of accepted Form 24G statement will be quoted in Transfer voucher field. This value will be provided by the Accounts Officer to the deductor

Form No 27EQ

Form No 27EQ is to be filed for tax collection at source

Validation for no/lower/higher deduction will not be applicable for Form no. 27EQ

PAN compliance validation of 85% will be applicable for Form no. 27EQ

New File Validation Utility : FVU 3.0

Quarterly e-TDS statements (regular and correction) upto FY 2009-10 should be validated with FVU version 2.129. There is no change in the validations for statements upto F.Y. 2009-10

Quarterly e-TDS statements (regular and correction) for FY 2010-11 should be validated with FVU version 3.0.

Status of FY 2010-11 Q1 statements

If statement for Q1 FY 2010-11 is being filed late , does it need to be validated with FVU 3.0 ?

The answer is Yes. it needs to be validated with FVU version 3.0.

eTDS Statements are accepted at TIN-Centres by SAM software. Latest SAM will not accept any statement for FY 2010-11 , unless it is validated with FVU 3.0

Gifts under section 56(2)(vi) of the Income Tax Act, 1961

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(For gifts received between 01.04.2006 to 30.09.2009)

Where any sum of money, the aggregate value of which exceeds Rs.50,000, is received without consideration by individual/HUF, the whole of aggregate value is taxable as income from other sources.

Provided that this clause shall not apply to any sum of money received;

(a) from any relative; or

(b) on the occasion of marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer.

For the purpose of this, ‘relative’ means : ‐

(a) spouse of the Individual;

(b) brother or sister of the individual;

(c) brother or sister of the spouse of the individual;

(d) brother or sister of the either of the parents of the individual;

(e) any lineal ascendant or descendant of the individual;

(f) any lineal ascendant or descendant of the spouse of the individual;

(g) spouse of the person referred to in clause (ii) to (vi).

Gifts under section 56(2)(vii) of the Income Tax Act, 1961

(For gifts received on or after 01.10.2009)

From 1.10.2009, new clause [Sec. 56(2)(vii)] introduced for charging of Gifts received by individual/HUF. Earlier, only gifts received in the sum of money was chargeable under Income Tax Act. However w.e.f. 01.10.2009 gift received in kind is also chargeable subject to certain conditions.

The new provisions is described as under :

I. If any sum of money received without consideration, the aggregate of which

exceeds Rs.50,000, the whole of such sum will be chargeable.

II. If any immovable property received –

(a) without consideration, the stamp duty value of which exceeds Rs.50,000,

the stamp duty value of such property will be chargeable.

(b) For a consideration, which is less than stamp duty value of property by an

amount exceeding Rs.50,000, the stamp duty value of such property as

exceeds such consideration will be chargeable.

III. if any property other than immovable property received –

(a) without consideration, the aggregate fair market value (FMV) of which

exceeds Rs.50,000, the whole of aggregate FMV of such property will be

chargeable.

(b) For a consideration, which is less than the aggregate FMV by an amount

exceeding Rs.50,000, the aggregate FMV as exceeds such consideration

will be chargeable.

However any such gifts received from relatives shall not be treated as income.

For the purpose of this, ‘relative’ means : ‐

(a) spouse of the Individual;

(b) brother or sister of the individual;

(c) brother or sister of the spouse of the individual;

(d) brother or sister of the either of the parents of the individual;

(e) any lineal ascendant or descendant of the individual;

(f) any lineal ascendant or descendant of the spouse of the individual;

(g) spouse of the person referred to in clause (ii) to (vi).

Roadmap for implementation of Indian Accounting Standards converged with IFRS [Press Note 4]

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PRESS RELEASE

Ministry of Corporate Affairs, after wide consultations with all stakeholders and regulators, has drawn up a clear roadmap for implementation of Indian Accounting Standards converged with IFRS. Converged Standards will have to be followed by Phase‐I companies w.e.f. 01.04.2011. The Phase I group excludes banks, insurance companies and smaller companies. National Advisory Committee on Accounting Standards (NACAS) has almost finalized drafting of the converged accounting standards. Under the Converged Accounting Standards, the Schedule VI will have two parts viz. Part‐A and Part‐B. Part‐A will be as per the existing notified accounting standards and Part‐B will be based on converged accounting standards. The NACAS has also finalized and recommended Part‐A and Part‐B of the Schedule‐VI. One of the issues raised by stakeholders is the tax implications in following converged standards. ICAI had set up a Group for identifying tax issues arising on convergence. The group includes nominees from Ministry of Finance. The Group has prepared a draft report identifying certain options which could be adopted to achieve tax neutrality. Secretary, MCA held a meeting with members of the Group, and instructed it to come up in a time bound manner with a specific proposal which will be revenue neutral and acceptable to the Ministry of Finance, while also compatible with IFRS

and meeting the needs of the Corporate sector. The implementation of converged accounting standards with IFRS will go on as per schedule.

Section 10(23C)(iv) of the Income-tax Act, 1961 - Exemptions - Charitable or religious trusts/institutions - Clarification regarding period of validit

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The Board has received various references from the field formations as well as members of public about the period of validity of approvals granted by the Chief Commissioners of Income-tax or Directors General of Income-tax under sub-clauses (iv), (v), (vi) and (via) of section 10(23C) and by the Commissioners of Income-tax or Directors of Income-tax under section 80G(5) of the Income-tax Act, 1961.

2. It has also been noticed by the Board that different field authorities are interpreting the provisions relating to the period of validity of the above approvals in a different manner. The following instructions are accordingly issued for the removal of doubts about the period of validity of various approvals referred to above.

3. Sub-clauses (iv) and (v) of section 10(23C) were amended by Taxation Laws (Amendment) Act, 2006 by insertion of the following proviso to that clause :—

“Provided also that any (notification issued by the Central Government under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall at any one time, have effect for such assessment year or years, not exceeding three assessment years) (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification.”

The intention behind the insertion of the above proviso was laid out in the relevant portion of the explanatory notes to the Taxation Laws Amendment Act, 2006 which reads as under :

“A need has been felt to dispense with the requirement of periodic renewal of notifications. The requirement of periodic renewal of notifications has been resulting in delays in their renewal.

5.2 In order to overcome delays, the eighth proviso to section 10(23C) has been amended so as to provide that the above mentioned limit of effectivity for three assessment years shall be applicable in respect of notifications issued by the Central Government under sub-clause (iv) or sub-clause (v) before the date on which Taxation Laws (Amendment) Bill, 2006 receives the assent of the President.

5.3 The Taxation Laws (Amendment) Bill, 2006 received the assent of the President on 13-7-2006. Therefore, on account of the above amendment any notification issued by the Central Government under the said sub-clause (iv) or sub-clause (v), on or after 13-7-2006 will be valid until withdrawn and there will be no requirement on the part of the assessee to seek renewal of the same after three years.”

The intention of legislature that the approvals under section 10(23C)(iv) and (v) after the cut off date mentioned above would be a one time approval which would be valid until withdrawn, is thus sufficiently clear.

4. Approvals under sub-clauses (vi) and (via) of section 10(23C) are governed by the procedure contained in rule 2CA. Rule 2CA was amended with effect from 1-12-2006, inter alia by substitution of the existing sub-rule 3 by a new provision which is reproduced below :—

“(3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006 shall at any one time have effect for a period not exceeding three assessment years.”

Read in isolation, without any further guidance as was given by way of explanatory notes to Finance Act, 2006 in respect of amendment of sub-clauses (iv) and (v) of section 10(23C), the above amendment leaves some scope for doubt about the period of validity of the approval under section 10(23C)(vi) and (via) on or after 1-12-2006. For the removal of doubts if any in this regard, it is clarified that as in the case of approvals under sub-clauses (iv) and (v) of section 10(23C), any approval issued on or after 1-12-2006 under sub-clause (vi) or (via) of that sub-section would also be a one time approval which would be valid till it is withdrawn.

5. As regards approvals granted upto 1-10-2009 under section 80G by the Commissioners of Income-tax/Directors of Income-tax, proviso to section 80G(5)(vi) clarified that any approval shall have effect for such assessment year or years not exceeding five assessment years as may be specified in the approval. The above proviso was deleted by the Finance (No. 2) Act, 2009. The intent behind the deletion of above proviso as explained in the explanatory memorandum to Finance (No. 2) Bill, 2009 was as under :

“Further as per clause (vi) of sub-section (5) of section 80G of the Income-tax Act, 1961, the institutions or funds to which the donations are made have to be approved by the Commissioner of Income-tax in accordance with the rules prescribed in rule 11AA of the Income-tax Rules, 1962. The proviso to this clause provides that any approval granted under this clause shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval.

Due to this limitation imposed on the validity of such approvals, the approved institutions or funds have to bear the hardship of getting their approvals renewed from time to time. This is unduly burdensome for the bona fide institutions or funds and also leads to wastage of time and resources of the tax administration in renewing such approvals in a routine manner.

Therefore, it is proposed to omit the proviso to clause (vi) of sub-section (5) of section 80G to provide that the approval once granted shall continue to be valid in perpetuity. Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the institution or fund. This amendment will take effect from 1st day of October, 2009. Accordingly, existing approvals expiring on or after 1st October, 2009 shall be deemed to have been extended in perpetuity unless specifically withdrawn.”

It appears that some doubts still prevail about the period of validity of approval under section 80G subsequent to 1-10-2009, especially in view of the fact that no corresponding change has been made in Rule 11A(4). To remove any doubts in this regard, it is reiterated that any approval under section 80G(5) on or after 1-10-2009 would be a one time approval which would be valid till it is withdrawn.

[F. No. 197/21/2010-ITA-I]