Media & Entertainment
The recent issue involves the applicability of TDS provisions on channel subscription charges collected by the broadcasters from the cable operators, MSOs, etc. Recently, tax authorities have taxed these revenues as royalty income in the hands of certain broadcasters, thereby creating ambiguity, where there was none!
* A specific exclusion has been carved out from the definition of royalty for the revenues from exhibition of cinematographic films under clause (v) of explanation 2 of Section 9(1)(vi) of the Income tax Act, 1961.
The revenues of a broadcaster are no different in nature. There is an urgent need for appropriate amendment in the above provision to include exhibition of programmes through various media, lest the amended provisions of Section 194J for TDS on, inter-alia, royalty creates further ambiguity.
* There are media reports suggesting that there is a move to include sportsmen in the TDS net. In such a case, a threshold limit of around Rs 2 lakh be specified for applicability to ensure that budding sportsmen and those involved in less famous sports do not suffer the rigours of TDS provisions.
* The M&E sector should be granted the benefits under Section 80IB and the SEZ Act, enabling a thrust to this sector.
— Govardhan Purohit, Executive Director, PricewaterhouseCoopers
IT & ITeS
The IT/ITeS sector has been hard hit by the appreciation in the rupee vis-à-vis the US dollar. With the SEZ initiative steeped in controversy and benefiting the large players more than the small ones, the industry has been lobbying hard for the continuation of the tax holiday under section 10A of the Income-tax Act.
The government should respond to the call and extend the benefit under Section 10A for a 5-10 year period. The government should also roll back the minimum alternate tax imposed on Section 10A companies in the last budget.
* On the SEZ front, the finance ministry should clarify the mode of computation of the deduction under Section 10AA for SEZ units by stating that the total turnover of the assessee should comprise the turnover of the unit located inside the zone only.
* The levy of FBT on stock options should be revisited and even if it is retained there should be greater clarity in the application of the valuation principles.
* The ministry should also lay down clear principles with respect to transfer pricing and introduce an advance pricing mechanism, which would boost the morale of IT companies that have been hit hard by transfer pricing adjustments.
—Indraneel Roy Chaudhury, Executive Director PricewaterhouseCoopers
The financial services industry is witnessing constant innovation with regular introduction of new products and clearly tax policies must keep pace with the developments.
Firstly, the amendment brought in last year restricting the pass through status for VCFs has not resulted in significant
additional tax revenues to the exchequer but only resulted in tax complexity for the investors and going forward, protracted litigation.
Restricting the exemption to certain sectors would kill the flow of VCF money to other potential growth sectors. There is strong merit in re-introducing the tax pass through status for all VCFs.
Further, the government’s objective of restricting investment in certain sectors could be achieved by including those sectors in the negative list under the SEBI VCF Regulations.
Secondly, even post circulars and numerous rulings, characterisation of gains of FIIs as business income or capital gains continues to remain an open issue. Clarity on this matter in terms of characterisation of FII income as capital gains would lead to tax certainty for FIIs and would go a long way in providing much needed stability, maturity and eventual growth to the capital markets.
Finally, while the draft REIT guidelines would provide an alternative investment avenue for retail investors, some amendments in the tax law to boost REIT as an investment vehicle, are warranted. Currently, there is no separate
tax regime specific for REITs or their investors. Beneficial treatment which is available to the mutual funds industry should be extended to REITs as well.
—Punit Shah, Leader, financial services tax practice, PricewaterhouseCoopers
* Recognition as an ‘industry’ to enable, among others, preferential financing by banks and financial institutions
* Pass through tax status for REITs on the lines of the tax status of equity oriented mutual funds coupled with clarity on FDI investments with REITS
* Introduction of special residential zones encouraging low cost housing
* Reintroduction of incentives (Section 80IB) for residential projects and recognising real estate projects as creating infrastructure facility and hence eligible for deduction under Section 80IA
* Rationalisation of stamp duty
* Gradual phase out of the IT park benefits under the old scheme to ensure fair treatment to pending applications and relooking at an expansion of the scope under the new scheme to include ITeS/services sector units
* Relaxation of FDI norms in this sector
* Beneficial clarification on issues around taxability of reverse mortgages
Gautam Mehra, Leader, real estate practice, PricewaterhouseCoopers