From April 2016, companies with a net worth of Rs.500 crore and above began re-stating their accounting numbers in IFRS-compliant Indian Accounting Standards (Ind-AS). This will be mandatorily extended to companies with a net worth greater than Rs.250 crore from April 2017.
Ind-AS is largely based on fair-value accounting. This involves accounting for various benefits or costs that are unrealised or notional, leading to taxation on a notional basis. “Based on the Ind-AS conversion guidelines, companies will need to undertake a one-time adjustment of various accounting treatments in opening retained earnings,” says Nabin Ballodia, partner, tax, KPMG in India. The transition to Ind-AS provides certain options to corporates that could increase or decrease the retained earnings based on the choices made.
“In general, this will increase the retained earnings of corporates because Ind-AS relies on the fair valuation concept whereas corporates have traditionally followed the historical cost method,” notes RK Garg, director, finance, Petronet LNG.
Challenges
A note prepared in this regard by Deloitte India points out that in the Ind-AS scenario computation of income under MAT and normal tax provisions present various technical issues. One key question is: should the notional income or expenses recognised in Ind-AS be considered for the purposes of tax computation? Moreover companies are grappling with the question of what should be the starting point for calculation of MAT profits, the note says.
The government constituted the MP Lohia Committee to look at the MAT aspects on conversion to Ind-AS. The committee has submitted three reports to the Central Board of Direct Taxes. One of the recommendations of the committee has been that one-time adjustments should be taxed in three equal instalments spread over three years. “For MAT-paying companies this could mean a huge outflow of tax for the first three years,” says Garg.
There has been no clarity on MAT calculations even when the principals are applicable in the current financial year. “This may result in interest liabilities for no fault of the corporates,” says Ballodia.
Resolution expected in the Budget
One of the key expectations of corporates is that the payment of taxes due on account of the onetime adjustment should be spread over five years.
Many also want the MAT credit to be carried forward without any time limit. Tax experts expect the government to offer a relief in interest payable on account of the shortfall in advance tax payment for companies that come under MAT.
The Budget may also provide a roadmap for phasing out MAT, which was brought in to tax companies that were making profits but did not pay taxes due to various tax holidays. As the tax holidays are being been phased out, so should MAT, feel tax experts. Base Erosion & Profit Shifting (BEPS)
Background
The loopholes and concerns in the existing international tax system leading to base erosion and profit shifting were identified and taken up as a project by the OECD and G-20 nations. The challenges posed included taxing the digital economy and the disparity in allocation of profits among countries based on value-chain analysis.
In India as part of the BEPS project, the equalthe equalisation levy, though not primarily undertaken for the purpose of advertisement. These include transactions involving website hosting services, service fee for sale or display of goods on digital platforms, and certain specific marketing services.
Further the signing of the multilateral instrument in the first half of 2017 could have a farreaching impact on the international tax framework.
Resolution expected in the Budget
To avoid disputes on classification of services liable to the equalisation levy, the government should clarify the scope and coverage of payments, says Saiya of BDO India.
Business Standard New Delhi,16th January 2017
Challenges
A note prepared in this regard by Deloitte India points out that in the Ind-AS scenario computation of income under MAT and normal tax provisions present various technical issues. One key question is: should the notional income or expenses recognised in Ind-AS be considered for the purposes of tax computation? Moreover companies are grappling with the question of what should be the starting point for calculation of MAT profits, the note says.
The government constituted the MP Lohia Committee to look at the MAT aspects on conversion to Ind-AS. The committee has submitted three reports to the Central Board of Direct Taxes. One of the recommendations of the committee has been that one-time adjustments should be taxed in three equal instalments spread over three years. “For MAT-paying companies this could mean a huge outflow of tax for the first three years,” says Garg.
There has been no clarity on MAT calculations even when the principals are applicable in the current financial year. “This may result in interest liabilities for no fault of the corporates,” says Ballodia.
Resolution expected in the Budget
One of the key expectations of corporates is that the payment of taxes due on account of the onetime adjustment should be spread over five years.
Many also want the MAT credit to be carried forward without any time limit. Tax experts expect the government to offer a relief in interest payable on account of the shortfall in advance tax payment for companies that come under MAT.
The Budget may also provide a roadmap for phasing out MAT, which was brought in to tax companies that were making profits but did not pay taxes due to various tax holidays. As the tax holidays are being been phased out, so should MAT, feel tax experts. Base Erosion & Profit Shifting (BEPS)
Background
The loopholes and concerns in the existing international tax system leading to base erosion and profit shifting were identified and taken up as a project by the OECD and G-20 nations. The challenges posed included taxing the digital economy and the disparity in allocation of profits among countries based on value-chain analysis.
In India as part of the BEPS project, the equalthe equalisation levy, though not primarily undertaken for the purpose of advertisement. These include transactions involving website hosting services, service fee for sale or display of goods on digital platforms, and certain specific marketing services.
Further the signing of the multilateral instrument in the first half of 2017 could have a farreaching impact on the international tax framework.
Resolution expected in the Budget
To avoid disputes on classification of services liable to the equalisation levy, the government should clarify the scope and coverage of payments, says Saiya of BDO India.
Business Standard New Delhi,16th January 2017
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