ASSOCHAM pleas equalization levy under Finance Act

ASSOCHAM today suggested the government to introduce the equalization levy as part of Indian Income-tax Act itself and not as a separate chapter in the Finance Act.

The post budget memorandum submitted to the Centre by ASSOCHAM stated introducing equalization levy separately under the Finance Act and not incorporating it as a part of the existing Income-tax Act would only increase cost of doing business for Indian companies, as foreign companies would insist that this being a domestic levy should not affect payments made to them, as such domestic companies would be required to gross up equalization levy while making payments, thereby adding to the cost.

Whereas, if this levy is introduced as part of the Income-tax Act itself, it would not add to the cost of business to Indian company as it would be in nature of regular withholding, it said.

Further, ASSOCHAM has also suggested that it should be clarified that the term true and fair inventor would include a company that acquires patent or right to apply for patent from its employees who have developed such invention during the course of their employment.

On the issue of retiral funds, ASSOCHAM has recommended that all stipulations relating to taxability of accumulated balance/annuity for recognized provident fund and superannuation fund as well as the financial limit of Rs. 1.50 lakh for employer's contribution to superannuation fund be withdrawn.

As per a recent government clarification in respect of the accumulated balance in the recognized provident fund, the taxability of stipulated 60 percent balance will not apply in case the same is invested in an annuity.

"This is an extremely controversial suggestion since money (lump sum) is generally utilized from the provident fund for various important purposes like construction of house, wedding and others and the salaried class cannot be forced to invest in any annuity scheme for tax saving purpose when lump sum money is required post-retirement," highlighted ASSOCHAM post-budget memorandum.

Moreover, this would result in mixing up the entire retiral benefits schemes since the Provident Fund would effectively get converted into a pension scheme.

PF for Government employees continue to get a completely tax free status by virtue of section 10(11). Consequently, it would result in providing preferential treatment with regard to taxability of PF for Government sector vis-a-vis private sector employees.

Further, the taxability of employer's contribution in the Superannuation Fund beyond Rs. 1.50 lakh is an extremely arbitrary measure since superannuation benefits are only given post - retirement and therefore employees would be required to pay income tax immediately for a retirement benefit which will only be available after his superannuation.

Moreover, superannuation benefits are of a contingent nature which are available only if various conditions are complied with like certain number of years of service, the individual remaining alive at that stage etc.