Cental board of direct taxes (CBDT) chairman Sushil Chandra. Photo: PTI
New Delhi: India will renegotiate tax treaties with countries having companies with significant economic presence in India in its effort to tax the digital economy but will restrict the scope to cover only large entities, said Sushil Chandra, chairman of central board of direct taxes (CBDT). In an interview, Chandra said proposals in budget FY19 seek to add more taxpayers, make taxation more equitable and fair, reduce arbitrage among asset classes and boost manufacturing. He also explains why taxing long-term capital gains from sale of listed shares is essential for a fair tax policy and how the tax department is cracking down on crypto currencies. Edited excerpts:
Finance bill 2018 has introduced the concept of significant economic presence to tax offshore firms offering digital services to Indian customers. What will be threshold based on which the provisions will come into effect?
Earlier, taxability of offshore firms was linked to their physical presence under the concept of permanent establishment (PE) (which is articulated in tax treaties). In this budget, we have said significant economic presence will also constitute a PE. But that is only an enabling provision. On this basis of this provision in domestic law, we can negotiate tax treaties with other countries.
We are not looking to tax minor economic activity. Most of the big companies have significant user base and India, with its large population, contributes to the revenues of the big global digital companies. And we want that they should be taxed. We will decide on how much economic presence—depending on the number of users, depending on the amounts involved. We will discuss with stakeholders and issue a notification before renegotiating treaties. We will look at renegotiating treaties with all countries with companies enjoying a significant economic presence in India. Till that time, provisions of double tax avoidance treaties will continue.
What is the progress on the investigation on bitcoin exchanges and investors in crypto currencies?
We conducted surveys on all the major bitcoin exchanges. We have obtained the list of persons who are frequently trading on these exchanges. There are around 3-4 lakh such people. We have given notices depending on the amounts involved.
We are looking at two things—whether the source of funds for the investments can be explained and whether capital gains tax is being paid on the gains made from trade in such crypto currencies. We have found that in quite a large number of cases, even the investment is not absolutely explained let alone the capital gains. So we will tax the undeclared income and the capital gains.
Who are the biggest gainers from budget FY19?
The biggest gainers are companies with turnover up to Rs250 crore, the tax rate on which have been reduced from 30% to 25% and senior citizens, who have been granted higher deduction on health insurance premium of up to Rs50,000 (from earlier Rs30,000) and higher deduction of up to Rs1 lakh for medical treatment for critical ailments (up from Rs80,000 for very senior citizens and Rs60,000 for senior citizens). Salaried persons and pensioners got a big relief by way of standard deduction of Rs40,000.
Footwear and leather industry, too, have benefited from the deduction of emoluments paid to new employees, a benefit already available to the apparel industry. This will boost employment generation.
What are the some of the important changes that have been introduced in the finance bill?
We have brought in amendments to ensure we can file prosecution against companies who do not file their tax returns. We have also said that profit-linked deductions will not be available to those entities who do not file their tax returns on time. We have also made permanent account number (PAN) mandatory for non-individuals for transactions aggregating to more than Rs2.5 lakh a year. We have also introduced changes in law to make sure charitable or religious trusts or institutions deduct tax at source while making payments above a threshold.
We have also made a change in the way capital gains are computed for the transfer of an immovable property. Earlier, we considered only the circle rate. We have said this time that even if the consideration is less than the circle rate by up to 5%, we will not make any adjustment.
No second thoughts on the proposed long-term capital gains tax on equities?
No question. We want the tax system to be fair and equitable among classes of taxpayers and among classes of assets. Long-term gain from property is already taxed at 20%. While hard working salaried persons get taxed at 5-30%, long-term capital gain from equities of Rs3.57 trillion was not taxable last year. This calls for taxation. Besides, the tax exemption had led to abusive practices, which needed to be addressed. The proposed 10% tax on long-term capital gain on equities is applicable only if the gain is above Rs1 lakh. Also, the gains made on investments up to 31 January are not taxable.
What is the policy direction on personal income tax rate and the slabs that we can expect from the direct taxes code?
We have already halved the rate on Rs2.5-5 lakh slab to 5%, the lowest anywhere in the world. So we decided to give a standard deduction, which will benefit all, rather than raising the basic exemption threshold to Rs2.9 lakh. This is a relief for the salaried class, who pay an average tax of Rs76,000 a year. A committee is looking into the new tax code.