M A I N   N E W S

FM rolls back duty hike on jewellery
Sanjeev Sharma/TNS

New Delhi, May 7
In a bid to appease foreign investors, Finance Minister Pranab Mukherjee today put off the implementation of the controversial tax evasion measure, General Anti Avoidance Rule (GAAR), for a year and also offered sops to jewellers by rolling back duty hike and real estate transactions but did not climb down on taxing Vodafone-type transactions.

Moving the Finance Bill 2012 in the Lok Sabha, Mukherjee surprised the markets with a clarification on GAAR at the beginning of the debate itself. GAAR had been introduced in the Union Budget proposals to check tax evasion through tax havens like Mauritius but foreign institutional investors (FII) had protested vehemently saying that the move was sudden and lacked clarity.

After the Budget, FII inflows had dried up leading to a fall in the markets and causing the rupee to weaken consistently. Given the high current account deficit and the dire need to balance it with incoming dollars, the Finance Minister said he has postponed the provision to 2013-14 to give time to tax payers and tax administration to resolve all issues. Stock markets reacted immediately to the announcement and recovered 400 points from the day’s lows caused by adverse results in the elections in France and Greece which in the morning had led to a crack in European and Asian markets. The rupee also strengthened by almost 1 per cent. Keeping his word on the jewelers agitation, the Finance Minister also announced the withdrawal of the 1 per cent excise duty on all precious metal jewellery, branded or unbranded.

To curb the flow of unaccounted money in the bullion & jewellery trade, the threshold limit for TCS (tax collection at source) on cash purchase of jewellery will be raised to Rs 5 lakh from the present Rs 2 lakh. The threshold limit for cash purchase on bullion will be retained at Rs 2 lakh. Bullion will not include any coin or other article weighing 10 gm or less.

In a relief to the real estate market, Mukherjee also announced that the 1 per cent tax deduction at source on sale of property is being withdrawn as he had received representations that this would cause additional burden.

However, there seems to be no joy for Vodafone and such like deals as the Finance Minister said that retrospective amendments on overseas deals involving capital gains tax on sale of domestic assets would apply but clarified that they would not override the Double Taxation Avoidance Agreements (DTAA) with 82 countries. He also clarified that they would not apply to transactions where the final tax assessment has been completed which may not apply to Vodafone. Dinesh Kanabar, Deputy CEO and Chairman Tax, KPMG India on implications of GAAR on Vodafone said: “The government seems to be persistent with the introduction of retrospective amendment for taxation of overseas transfer. The statement made by the Finance Minister that assessments which have attained finality will not be reopened is very interesting. The issue as to whether or not the transaction is taxable has attained finality for Vodafone having regard to the judgment of the Supreme Court. In that light it remains to be seen as to whether the Chapter would be closed vis-à-vis Vodafone both on the withholding matter as well as the substantive liability on the taxability of the transaction.’’