Features & Analysis of Taxation Law Amendment Bill 2016

The parliament passed the Taxation Laws (Amendment) Bill, that seeks to amend the income Tax Act, 1961 & Customs Tariff Act, 1975.

Features of the bill

Income Tax Act, 1961

  • Demerger of public sector companies: The companies Act, 1956 allows companies to demerge (split) into multiple companies. 
  • The Income Tax Act, 1961 consider these transfers from the parent company for taxation of resultant companies. 
  • The Bill simplifies that these provisions will apply in case a public sector company demerges & the resultant company is no longer a public sector company. 
  • Deduction in respect of employment of new employees: The Income Tax Act, 1961 permits businesses to get a deduction on taxable financial gain to the extent of 30% of the cost of employing a new employee. 
  • The Act needs that the employee should have been employed for a minimum of 240 days in previous year. 
  • The bill reduces this limit to 150 days for businesses which manufacture apparel. 

Custom Tarrif Act 1975

  • Levy of IGST on imports: Goods imported will be accountable to pay the Integrated Good and Service Tax (IGST). IGST will be levied on the cumulative of value of the imported goods, customs Duty levied under the Act, and any other amount chargeable under any law. 
  • Levy of GST Compensation Cess on imports: Goods imported will be accountable to the GST Reimbursement Cess. The Cess will be levied on the cumulative of value of the imported goods, Customs Duty levied under the Act, and any other amount chargeable under any law. 
  • Customs duty on marble & granite blocks & slabs: At present, the customs duty on imports of granite & marble used for certain purposes are charged at 10%. The new bill proposes to increase this to 40%. 

Analysis

  • The main aim of the proposed amendment in customs acts is to enable the government with greater flexibility in terms of tariffs 
  • Majority of the Indian garments are summer garments. The nature of this trade in itself is periodic. Therefore, companies have been given tax incentive by amending Income Tax act to help them to be competitive. 
  • This is in line with the special package announced in June 2016 for employment generation and promotion of exports in textile and apparel sector, in line with its commitment to generate one Crore jobs in the textile and apparel industry over the next three years. 
  • At present, imports of marble blocks/slabs and granite blocks/slabs are subject to a combination of non-tariff measures - quantitative restrictions and minimum import price and also a tariff measures, i.e. custom duty. 
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