Bowing to pressure, Finance Minister Pranab Mukherjee on Monday announced a slew of measures to provide relief to the jewellery sector and postponed implementation of the general anti-avoidance rules by one year, butoffered no concessions to Vodafone involved in tax dispute.
Moving the Finance Bill, 2012 for consideration and passage in the Lok Sabha, Mukherjee halved the capital gains tax for private equity investors to 10 per cent and relaxed the norms for arrest of persons involved in violation of Customs Act.
"The government has decided to withdraw the levy (one per cent excise duty) on all precious metal jewellery, branded or unbranded, with effect from March 17, 2012," he announced, bowing to demand within and outside the House.
He said the threshold limit for TCS (tax collection at source) on cash purchase of jewellery will be raised to Rs 500,000 from the present Rs 200,000.
However, the minister said, the threshold limit for cash purchase on bullion will be retained at Rs 200,000.
Bullion will not include any coin or other article weighing 10 gm or less, he added, setting the tone for the debate on the crucial bill.
As regards the GAAR, which has evoked sharp criticism from foreign investors, the Finance Minister said, 'to provide more time to both tax payers and tax administration to address all issues, I propose to defer the applicability of the GAAR provisions by one year. . .(it) will now apply to income of financial year 2013-14 and subsequent years.'
These amendments, including shifting of onus of proof to the revenue department from the tax payers, appointment of independent member in the GAAR panel and permitting investors, domestic and overseas, to seek ruling from the Authority for Advance Ruling.
To provide 'greater clarity and certainty' in GAAR related issues, he said, a committee has been set up.
It has held several rounds of discussions with various stakeholders including foreign institutional investors and will submit its report by May 31.
He made it clear that there would no relief to Vodafone- type overseas deals involving capital gains tax on sale of domestic assets and the proposed retrospective changes in the Income Tax Act would apply.
"I would like to confirm that clarificatory amendments do not override the provisions of the Double Taxation Avoidance Agreement which India has with 82 countries.
"It (retrospective changes) would impact those cases where the transactions has been routed through low tax or no tax countries with whom India does not have a DTAA," he said.
Mukherjee did not make any specific mention but was clearly referring to the tax controversy surrounding $11.2 billion Vodafone deal which was signed in Cayman Islands in 2007.
India does not have a DTAA with Cayman Islands.
Vodafone has won the Rs 11,000 crore (Rs 110 billion) tax case in the Supreme Court, but after the passage of the Finance Bill, the government can initiate proceedings to recover the tax.