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Business News/ Politics / Policy/  Finance Bill passed in Lok Sabha; excise duty on jewellery remains
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Finance Bill passed in Lok Sabha; excise duty on jewellery remains

Finance minister Arun Jaitley defends the govt's decision, says tax on jewellery was much lower than what was levied by some states

A file photo of finance minister Arun Jaitley. Photo: Abhijit Bhatlekar/MintPremium
A file photo of finance minister Arun Jaitley. Photo: Abhijit Bhatlekar/Mint

New Delhi: The Lok Sabha on Thursday cleared the finance bill, signing off on the government’s tax proposals for the year aimed at reducing litigation, checking tax evasion and simplifying tax laws.

It will also pave the way for setting up the monetary policy panel comprising members from the Reserve Bank of India and independent experts that will decide changes in policy rates.

The government retained the excise duty on jewellers despite opposition from some political parties but kept its promise of rolling back provisions relating to taxation of withdrawals from the Employees’ Provident Fund.

The government also relaxed provisions relating to capital gains on unlisted shares and allowed start-ups set up as limited liability partnerships to also claim tax holiday benefits as part of its Start-up India programme.

Income from transfer of unlisted shares will now attract the lower long-term capital gains tax if held for a period of two years, as against three years earlier. This will benefit investors such as private equity and venture capital funds, who primarily invest in unlisted securities.

In his reply to the finance bill, Arun Jaitley defended the government’s decision to retain the excise levy on jewellery and said the tax was much lower than what was levied by some states.

In this year’s budget, Jaitley had proposed an excise duty of 1% without input tax credit and 12.5% with input tax credit on articles of jewellery, with the exception of silver jewellery. This led to protests from artisans and jewellers, who went on strike for more than 18 days.

The government had announced many safeguard measures to protect jewellers from harassment, but that did not assuage them. On Wednesday, in the finance bill debate, political parties including the government’s ally Shiv Sena, the Telangana Rashtra Samiti (TRS) and the All India Trinamool Congress opposed the levy.

“The issue of tax on gold has been raised. We have put adequate safeguards possible," Jaitley said while dismissing demands for a rollback. “You do not have problem on the 5% VAT on gold that Kerala levies. Other states also levy this tax. But you have a problem on the 1% tax that the centre wants to levy."

The finance ministry had clarified that the levy will only be imposed on jewellers whose turnover was more than 12 crore in the previous financial year, thus sparing small jewellers. It had also promised that an excise officer will not visit any of the artisans or jewellers, thus sparing them harassment. It had also announced a host of steps to make it procedurally easier for the jewellers to pay the tax.

Defending the steps taken by the government to check black money, Jaitley said the government had unearthed 71,000 crore of undeclared income both on the direct and indirect tax side through assessments.

He also said that the government has issued notices to all the Indian residents named in the Panama Papers seeking details of their investments and if they had sought prior permission from the central bank while remitting money overseas.

Jaitley also said that the government will soon clarify on the applicability of the tax deducted at source provision for land acquired under the land acquisition law of 2013.

“Under the new land acquisition law, there is no tax or TDS on acquisition of land and on land compensation. Even though there is no tax, there is a TDS provision of the income tax which applies. So, obviously, there is a conflict between the provision of the Income Tax Act and the subsequently enacted Land Acquisition Law," Jaitlley said. “I am seized of this problem and I am going to take a view on this because obviously the intention of the Parliament is expressed by the subsequent law which is the 2013 law. So, in view of this, we will try and resolve the anomaly."

Sunil Shah, partner at Deloitte Haskins & Sells Llp, said the reduction of the holding period for shares of an unlisted company to qualify for long-term capital gains will reduce the tax burden for shareholders in such firms and encourage M&A activity. “The tax holiday for start-ups has been extended to LLPs. Start-ups need not incorporate as a company and formation as an LLP will help in minimizing administrative costs," he said.

The government also sought to tax dividends at the additional 10% rate on the entire aggregate dividend received by an individual in case it is more than 10 lakh and not just on the amount of dividends exceeding 10 lakh.

At present, a dividend distribution tax of 20% is levied on firms distributing dividends. In addition, Jaitley imposed an additional 10% levy on the individual receiving the dividend.

Rahul Garg, partner and leader, direct tax, at PwC said the amendments by the government on Thursday are a mixed bag. “Making under-reporting of income as wilful default for prosecution and the aggregation of dividend for additional tax threshold computation are not so business friendly," he said.

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Updated: 06 May 2016, 04:07 AM IST
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