Pranab rolls back duty on jewellery

Pranab rolls back duty on jewellery

Move to defer GAAR boosts bourses

The government on Monday rolled back the 1 per cent excise duty levy on branded or unbranded jewellery and put off implementation of the General Anti-Avoidance Rules (GAAR) by a year in a host of post-budget concessions.

Making announcements while moving the Finance Bill, 2012, for consideration in the Lok Sabha, Finance Minister Pranab Mukherjee also raised the threshold limit for tax collection at source by sellers on cash purchases of jewellery to Rs 5 lakh from Rs 2 lakh. He, however, left unchanged the doubling of the import duty on gold to 4 per cent as proposed in the budget.

The postponement of the GAAR was aimed at responding to the concerns of foreign investors whose alarm at GAAR saw sharp decline in funds flow in Indian stock markets and also weakened the rupee. Allaying misgivings of foreign investors, the onus of proof will now be on the tax authority and not the tax payer.

Mukherjee said the GAAR will come into effect from April 1, 2013. He has constituted a committee to frame guidelines.

The GAAR proposal aims at targeting tax evaders, partly by stopping Indian companies and investors from “round-tripping” or routing investments through Mauritius and other tax havens. Foreign investors domiciled in Mauritius could also be exposed to short-term capital gains tax under the rule.

The postponement of the GAAR sent the rupee to a week high of 52.96 against the dollar from 53.20 and also helped the BSE Sensex rebounce from a 318-point loss to a gain of 82 points at the close of the day.

The uncertainties arising out of the GAAR along with some other policy reversals in the recent past, had weighed heavily on the country’s equity market with foreign investors pulling out Rs 777 crore in April this year. According to Sebi data, the FIIs also pulled out Rs 2,111 crore from the debt market in April, taking the collective net outflow in stocks and bonds to Rs 2,888 crore. About 40 per cent of nearly $247 billion foreign direct investment to India over the last 12 years have come from Mauritius and tax authorities believe a large part of it is routed by Indian companies to evade taxes.

Mukherjee also announced withdrawal of 1 per cent levy of Tax Deduction at Source on transfer of immovable property, following representations that this would impose an additional compliance burden. He also halved the long-term capital gain tax on investment by Private Equity investors to 10 per cent from 20 per cent and exempted such tax on the sale of unlisted securities in initial public offerings.

Both measures are considered investor-friendly and may boost the stock market sentiment.

There is still uncertainty on the Vodafone tax deal as the relaxations announced by Mukherjee said that a move to amend income tax laws retrospectively would not override the provisions of double taxation avoidance agreements India has signed with 82 countries, including Mauritius.

Highlights of budget changes

*    Implementation of GAAR
    deferred by a year to 2012-14
*    1% excise duty withdrawn on
    all precious metals, branded
    or unbranded jewellery
*    Tax collection at source on
    purchase of jewellery raised
    from Rs 2 lakh to Rs 5 lakh
*    Long-term capital gains tax
    on investment by private
    equity investors in unlisted
    securities halved to 10%
*    Sale of unlisted securities
    in IPOs exempted from
    long-term capital gains tax
*    1% TDAS on sale of immovable
    property rolled back

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