The finance ministry has decided to bring in greater clarity in transfer pricing norms. A senior finance ministry official said as the first step, the government issued a notification on Friday to clear doubts over the possibility of changes in the permissible variations from the market price to the arm's length price for assessment year 2012-13. The notification said where the variation between the arm's length price determined under Income Tax Act provisions and the price at which an international transaction had been undertaken did not exceed five per cent of the latter, the price at which the transaction took place would be taken as the arm's length price.
The finance ministry's decision to allow a five per cent variation this year is significant, as the Finance Act 2012 has fixed an upper ceiling of three per cent as the tolerance range for determining the arm's length price from assessment year 2013-14 onwards. The official said the continuation of the five per cent tolerance range for 2012-13 would be a big relief for industry. The announcement of advance pricing agreement (APA) norms, introduced in the Budget, was next in line, said another official. The APA norms were expected to come by the end of the month, which was set to signal the government's intention to bring in transparent processes, he said. The APA regime had to begin from July 1. But, owing to a delay in the notification of norms, it is yet to start. Currently, global taxation experts consider India as one of the most difficult transfer pricing destinations, with more than half the transfer pricing audits facing adjustments resulting in an additional tax demand and litigation. Income tax officials had gone on an overdrive in the last two financial years to collect as much additional revenue from transfer pricing adjustments as possible and the estimates even touched Rs 80,000 crore in 2011-12 alone, impacting multinational companies doing business in India and Indian companies with a big presence abroad. According to the income tax department's own estimates, the government's sharp focus on mis-pricing, identified as one of the main and new methods of transfer of illicit funds outside the country, had resulted in the detection of mis-pricing of Rs 33,784 crore during 2009-10 and 2010-11, as against Rs 14,655 crore in the previous five financial years. The continuation of the five per cent tolerance range and the APA mechanism are expected to bring in certainty and transparency. The ministry is likely to decide cautiously on the implementation of safe harbour rules being formulated by a committee appointed by the Prime Minister. The job is to be completed by the end of this year. To curb the misuse of transfer pricing, one option is to fix an acceptable level of the difference from the market price for each industry. In simple terms, these would be a simple set of rules for the pricing of services while doing business with parent or subsidiary companies and would be called safe harbour rules. Finance ministry officials said the safe harbour rules would be handled cautiously as such rules had been implemented by very few countries in a limited way. |
The government's take on recommendations to be given by the Parthasarthi Shome Committee on the General Anti-Avoidance Rules (GAAR) and the N Rangachary panel on taxation on IT sectors may be incorporated in the proposed Direct Taxes Code (DTC). The recommendations by both Shome and Rangachary panels are likely to come up as part of the DTC Bill, officials in the finance ministry told Business Standard.
Officials, however, did not rule out some important income tax provisions coming up in the winter session of Parliament as well. The Monsoon session is slated to conclude on September 8. Finance Minister P Chidambaram has already directed a review of retrospective amendments to the Income Tax Act. Besides, the terms of reference of the Shome panel has been extended to cover the impact of the retrospective amendments on foreign institutional investors (FIIs). GAAR, announced in the Budget for 2012-13, was opposed by the industry. In fact, Mauritius Foreign Affairs and Trade Minister Arvin Bolell as well as Singapore Prime Minister Lee Hsien Loong pitched for predictability of laws. As such, Prime Minister Manmohan Singh, holding charge of the finance ministry portfolio after Pranab Mukherjee resigned to contest the Presidential fray, set up a panel under the chairmanship of tax expert Shome to review GAAR. This was done, even as the Finance Ministry had come out with draft guidelines on GAAR. The draft guidelines had turned down foreign institutional investors' demand that capital market transactions be exempted from the proposed GAAR, but tried to soften the blow by clarifying that non-resident investors among FIIs would not be taxed. It means that liability to pay tax would not fall on participatory notes holders, but on FIIs. GAAR is basically aimed at taxing those business structures whose primary aim is not commercial but tax avoidance. It could even override tax treaties, a provision opposed by Mauritius. The Shome Committee has been given time till August 31 to come out with the second draft on GAAR for the feedback from stakeholders. Later, its ambit was enlarged to review the impact of retrospective amendments on FIIs. These amendments were carried out in the Finance Bill to bring overseas deals like Vodafone where underlying assets are in India under the tax net. The amendments were done after Supreme Court had ruled that the Income Tax department has no jurisdiction to tax Vodafone for its 11 billion dollar deal to buy stake in Hutchison Essar (now Vodafone India.) After the industry objected to retrospective amendments as back as 1962, the government announced review of the amendments. But, that happened only after Pranab Mukherjee quit the Finance Ministry. The work on standing committee's recommendations on DTC Bill has not started yet. There are vast differences between the first draft bill initiated by Chidambaram and the bill tabled by then Finance Minister Pranab Mukherjee. | |||||||||||||||||||||||||||||||||||||||||||||
It's not easy when someone in the family expires. It's even worse when one has to go through complicated procedures to claim the sum assured. No wonder, most complaints filed with the Insurance Regulatory and Development Authority (Irda) are to do with late settlement of death claims. Often, one is not even aware how to claim the sum assured and in what manner. Insurers, nowadays, have various options. One can take the money in lumpsum or in monthly, quarterly or half yearly instalments.
On the other hand, DLF Pramerica's 'Family Income Plan', also a protection plan, gives the option to choose from a regular monthly income or a lumpsum benefit in case the policyholder dies. This would work best for a family who has dependents and needs regular income over a lumpsum. Since the choice and flexibility (of choosing the required claim settlement option) from term plans is limited, experts say many first time insurance buyers prefer an income benefit (traditional) plan over a term product. In case of traditional plans, IDBI Federal offers a standalone 'Incomesurance' plan which gives a guaranteed annual payout and allows one to choose their own payout options. Kotak Life Insurance, Bharti AXA Life Insurance and Bajaj Allianz Life Insurance are few other players, which offer similar plans. G V Nageswara Rao, managing director and chief executive officer at IDBI Federal Life Insurance says, most buy these products because individuals look for maturity benefits which are paid over years. "The option of getting a monthly or annual pay out after the plan matures is another attraction." So how do these plans work? These are typically endowment and moneyback policies where you can choose your premium paying term. But there is a catch. One has to buy a rider because in case there is a death before the product matures, then you will only get the sum assured and not the annual payouts on maturity. Riders can cost about 10 to 20 per cent of the total premium payable. Most of these don't opt for riders, but it's highly recommended to buy it, so as to not lose out on the future payouts. Once you buy the premium waiver rider, and the policyholder dies before the plan matures, then the insurer will pay the remaining premiums and your family can continue receiving payouts. Under the unit linked insurance plans (Ulips), the increasing benefit claim settlement option is more preferred where the person is paid the fund value in addition to the sum assured. Whereas, the level benefit is where either the sum assured or the fund value whichever is higher is paid. Experts say customers whose objective of investing in Ulips is only wealth creation go for the level benefit option. Claim settlement options have to be chosen based on the policyholder's age, profile and his financial needs in future. As A S Rajesh, vice-president , Bharti AXA Life Insurance says the amount one would require monthly/annually after the plan matures has to be decided first. "Our 'family income secure' traditional plan gives an option to choose the maturity amount either in lumpsum or spread across years on an annual basis." Choose the right product to ensure that the death or survival benefits for different kinds of insurance products come to you on time.
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