Heavy penalties for incorrect information
By H. P. Ranina
Published: Sun 20 Jan 2019, 4:15 PM
Last updated: Tue 22 Jan 2019, 8:02 AM
Q - My family concern in India is in the business of exports. They purchase merchandise from manufacturers who mainly belong to the small scale sector and these goods are exported all over the Gulf and East Asian countries. However, the cost of funds is very high. Is the Government planning to give any interest benefit to merchant exporters so as to make them competitive?
In the past few months, credit to exporters has been declining and this has been a cause of great concern because exports from India have been hovering around $310 billion. Recently, the Government has accepted the proposal of the Commerce Ministry to include merchant exporters in the Interest Equalization Scheme for pre and post shipment rupee export credit.
Under the new proposal, subsidy of 3 per cent of the interest rate will be given to exporters of products which are covered under 416 tariff lines. These products are largely manufactured by micro, small and medium enterprises and labour intensive sectors, such as agriculture, textiles, leather goods, handicraft and machineries. Merchant exporters contribute about 35 per cent of India's exports and, therefore, this subsidy will significantly reduce the cost of working capital of merchant exporters.
Q - My wife who has returned to India wants to set up a green house for growing fruits, vegetables and flowers. This will be done next to her residential house in a city. Would the profits made on sale of the produce be exempt from tax as agricultural income as the operations are carried out in a city?
'Agricultural income' under section 2(1-A) of the Income-tax Act is defined to mean income derived from land used for agricultural purposes by the performance of any process ordinarily employed by a cultivator to render the produce raised by him fit to be taken to market. Courts have taken into account advancements in modern technology. Many fruits, vegetables and flowers are grown in green houses located in cities.
If soil is removed from the agricultural land and placed in different containers like pots, trays and stands, and subsequent agricultural operations are performed to produce fruits, vegetables and flowers, the income derived from such agricultural activity by the green houses will be treated as agricultural income. However, if a nursery is maintained without carrying on any basic agricultural operations, for example, if flower plants purchased from farms are sold by the nursery, such income will not be treated as agricultural income and tax will have to be paid on profits earned from such sales.
Q - Multinational entities are required to furnish country by country reports where they have subsidiaries in other countries. Does India have a similar regulation and, if so, what is the requirement?
The country by country (CbC) report requirement is meant to ensure that all relevant tax authorities have access to the same information in respect of a multinational entity's value chain. Earlier, it was required by the Indian tax authorities to file the CbC reports by 31st December, 2018. This time limit has now been extended to March 31, 2019.
The concept of CbC reports was introduced to assist tax administration in having a complete understanding of the manner in which multinational enterprises conduct their operations. Sensitive information pertaining to the allocation of global income is required to be furnished. Therefore, voluminous data is required to prepare the detailed CbC reports. In case of wrong information being furnished, heavy penalties are provided.
- The writer is a practicing lawyer, specialising in tax and exchange management laws of India.