ECONOMY

Goods and Services Tax: Many issues still unresolved

Ensuring fewer tax slabs, smooth operation of refunds and less complicated paperwork are some challenges ahead

NEW DELHI: ON July 1, Goods and Services Tax (GST) completes one year. While many of the initial shocks seems to have settled, the technical snag, uneven tax slab at 28 per cent, long waiting periods at e-way bill clearance points and delays in refunds to the exporters suggest that the agenda remains unfinished yet.

“We have crossed the first hurdle. As we go forward, other issues will also be resolved step by step,” Finance Secretary Hasmukh Adhia said. The view is endorsed by both industry leaders and experts, who feel that the launch remains more or less successful. However, what will keep the government engaged in the coming months would be ensuring fewer tax slabs, smooth operation of refunds and less complicated paperwork, along with bringing the petrol and diesel prices under the GST ambit.

“With uniformity of rates and elimination of multiple other indirect taxes, the GST has cut out tax cascading, widened the tax net and added to tax revenues. For the tax to be truly effective, there is a need to move towards just three rates,” Rakesh Bharti Mittal, President, Confederation of Indian Industry, said.

Bringing real estate, petrol and alcohol under the purview of GST will make the rates more effective in the true sense, Mittal said.

Reducing paperwork and switching to single returns form still remains a challenge. “The single returns model is expected to take front seat by the year end. It will be challenging for the GSTN to design the single summary return to ensure that all critical information has been declared by taxpayers, so that no tax evasion happens due to incomplete data,” said Archit Gupta, CEO, ClearTax.

Regarding e-way bill, which attracted mixed reactions, it is a work in progress. “A proposal to check e-way bill only once during transit is already in talks. This will surely reduce the time involved in checking and formalities, thus minimising the overall travel time. Bringing in the Radio Frequency Identification system as early as possible is advised, as this intelligent device automatically identifies and tracks e-way bills attached to conveyance without the intervention of officers,” Gupta said.

A year later, uncertainties on GST implementation mar realty sector

At the time of Goods and Services Tax implementation last year,  the provision of input tax credit and transparency in the sector due to GST was expected to bring down home prices.

CHENNAI: At the time of Good and Services Tax (GST) implementation last year,  the provision of input tax credit and transparency in the sector due to GST was expected to bring down home prices.

However, rising land prices, confusion ranging from filing of returns up to the recent requirement of e-way bills and lack of clarity on abatement available for land costs, create difficulties for home buyers and builders alike.

“High land prices still remain a major obstacle in making real estate an affordable commodity in the true sense,” said Surendra Hiranandani, CMD, House of Hiranandani.

“With regards to abatement of land costs, clarity is required on abatement available for calculating service tax on under-construction projects. This will have a major implication on final prices because if the cost of land is 10 per cent of the overall project, there is a possibility of stagnant final costs. However, in major metropolitan cities, the land cost is almost 50-60 per cent of the total cost, so apartment prices might rise here,” he said.

Another major reason for GST benefits being unclear is the uncertainty surrounding levy of taxes. “A recent notification on the realty sector indicates (though not directly) that transfer of development rights may be subject to GST. Being in the nature of an immovable property, such transfers should ideally be outside the purview of GST,” said Harsh Shah, partner, Economic Laws Practice.

“However, uncertainty around the same has resulted in tremendous reduction in transactions in the nature of joint developments, re-developments, which is typically the modus operandi of this sector in key cities,” he added.  

Further, teething issues such as lack of clarity on cases when input tax credit is applicable and the constant uncertainty about whether builders would pass on the benefit of input tax credit to buyers, in spite of the anti-profiteering mechanism in place, have had a negative impact on GST implementation.

Prices of raw materials in the last few years have been volatile. Seasonal availability of sand, prices of steel and cement being highly dependent on market conditions, among other issues have created uncertainty about builders passing on input tax credit to homeowners.

Goods & Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax. The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.

The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2016, for introduction of Goods and Services tax in the country was introduced in the Parliament and passed by Rajya Sabha on 3rd August, 2016 and by Lok Sabha on 8th August, 2016. Consequent upon this, the Hon’ble President of India accorded assent on 8th September, 2016, and the same has been notified as the Constitution (One Hundred and First Amendment) Act, 2016. As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A. The notification for bringing into force Article 279A with effect from 12th September, 2016 was issued on 10thSeptember, 2016.

As per Article 279A of the amended Constitution, the GST Council which will be a joint forum of the Centre and the States, shall consist of the following members: -

1. the Union Finance Minister................................................................ Chairperson;
2. the Union Minister of State in charge of Revenue or Finance................. Member;
3. the Minister in charge of Finance or Taxation or any other
   Minister nominated by each State Government...................................... Members.

As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc.

The Union Cabinet in its meeting held on 12th September, 2016 approved setting-up of GST Council and setting up its Secretariat. The Cabinet inter alia took decisions for the following:

1. Creation of the GST Council as per Article 279A of the amended Constitution;
2. Creation of the GST Council Secretariat, with its office at New Delhi;
3. Appointment of the Secretary (Revenue) as the Ex-Officio Secretary to the GST Council;
4. Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee (non-voting) to all proceedings of the GST Council;
5. Create one post of Additional Secretary to the GST Council in the GST Council Secretariat (at the level of Additional Secretary to the Government of India), and four posts of Commissioner in the GST Council Secretariat (at the level of Joint Secretary to the Government of India).

The Cabinet also decided to provide for adequate funds for meeting the recurring and non-recurring expenses of the GST Council Secretariat, the entire cost for which shall be borne by the Central Government. The GST Council Secretariat shall be manned by officers taken on deputation from both the Central and State Governments.

The provisions of Article 279A of the Constitution of India with respect to constitution of GST Council and its mandate are as below:

GST COUNCIL

279A. (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council.

(2) The Goods and Services Tax Council shall consist of the following members, namely: —

1. the Union Finance Minister................................................................ Chairperson;
2. (b) the Union Minister of State in charge of Revenue or Finance................. Member;
3. (c) the Minister in charge of Finance or Taxation or any other
   Minister nominated by each State Government...................................... Members.

(3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide.

Mandate of GST Council

(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on—

1. the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;
2. the goods and services that may be subjected to, or exempted from the goods and services tax;
3. model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply;
4. the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
5. the rates including floor rates with bands of goods and services tax;
6. any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
7. special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
8. any other matter relating to the goods and services tax, as the Council may decide.

(5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

(6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonized structure of goods and services tax and for the development of a harmonized national market for goods and services.

(7) One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.

(8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions.

(9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely: —

1. the vote of the Central Government shall have a weightage of one third of the total votes cast, and
2. the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

(10) No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of—

1. any vacancy in, or any defect in, the constitution of the Council; or
2. any defect in the appointment of a person as a Member of the Council; or
3. any procedural irregularity of the Council not affecting the merits of the case.

(11) The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute —

1. between the Government of India and one or more States; or
2. between the Government of India and any State or States on one side and one or more other States on the other side; or
3. between two or more States, arising out of the recommendations of the Council or implementation thereof.

Goods and Services Tax Network (GSTN) is a Section 8 (under new companies Act, not for profit companies are governed under section 8), non-Government, private limited company. It was incorporated on March 28, 2013. The Government of India holds 24.5% equity in GSTN and all States of the Indian Union, including NCT of Delhi and Puducherry, and the Empowered Committee of State Finance Ministers (EC), together hold another 24.5%. Balance 51% equity is with non-Government financial institutions. The Company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST). The Authorised Capital of the company is Rs. 10,00,00,000 (Rupees ten crore only).

President of India Inaugurates The Platinum Jubilee Celebrations of The Institute of Chartered Accountants of India; Says GST has Made India a more Tax-Compliant Society

The President of India, Shri Ram Nath Kovind, inaugurated the platinum jubilee celebrations of the Institute of Chartered Accountants of India (ICAI) in New Delhi today (July 1, 2018).

Speaking on the occasion, the President said that adherence to a fair taxation system is much more than merely providing revenue to the government. It is part of the same social contract that underpins our Constitution. Under this Constitution we have given ourselves certain rights but also certain responsibilities. Taxes are what we pay to get social benefits in the form of public goods and services, health and education facilities, better infrastructure, law and order, and secure borders. It is crucial that this responsibility is shared by the widest possible number of citizens – whether they pay taxes directly or indirectly. It is the solemn duty of each one of us to contribute to the society that we share and the nation that we are part of.

The President said that chartered accountants have a key role in advancing such a culture. They are both facilitators of tax payers and of the taxation system as well as watchdogs of public trust. In many respects, a tax system is only as complicated as they want to make it. As professionals, it is their legitimate right to advise their clients on tax planning. However, there is a fine line between intelligent tax planning – and tax dodging and tax evasion. Chartered accountants are custodians of that fine line.

The President said that maintaining such propriety is not just a legal duty for all tax payers and for all taxation and financial professionals, there is also a morality added to it. When banking scandals take place, when large borrowers abscond and leave their banks in the lurch – or, as in the case of Satyam some years ago, when promoters themselves embezzle funds and carry out fraud – it represents a breach of faith. It amounts to a betrayal of not only corporate ethics but of honest fellow citizens and of our collective value system. White collar crimes don’t leave behind a smoking gun; they leave behind broken hearts and a shaken confidence. When such episodes occur, it would be in order to introspect. It would be relevant to ask if those responsible for auditing balance sheets have truly done their duty – or if they have contributed to the sorry situation.

Pointing out that today is the first anniversary of the implementation of GST, the President said GST has helped us achieve many goals. It has enhanced the ease of doing business by creating a common platform, across the country, for registration, duty payments, filing of returns and refund of taxes. GST has also enhanced reliance on technology and reduced scope for subjectivity.

The President congratulated all citizens and every stakeholder for the successful rollout of GST. He said that the GST rollout has been part of a sustained effort over the past few years to formalise the economy, enforce rule of law, promote transparency in financial and business transactions, and make India much more of a tax compliant society.

The President urged ICAI to promote financial literacy among our young people, and especially among women. He stated that education of women is a game-changer for any country and any civilisation. Greater financial literacy among women takes this process forward. It will help make us a more prosperous and a more equal society.

The Institute of Chartered Accountants of India (ICAI) is a statutory body established by an Act of Parliament, viz. The Chartered Accountants Act, 1949 (Act No.XXXVIII of 1949) for regulating the profession of Chartered Accountancy in the country. The Institute, functions under the administrative control of the Ministry of Corporate Affairs, Government of India. The ICAI is the second largest professional body of Chartered Accountants in the world, with a strong tradition of service to the Indian economy in public interest. 

The affairs of the ICAI are managed by a Council in accordance with the provisions of the Chartered Accountants Act, 1949 and the Chartered Accountants Regulations, 1988. The Council constitutes of 40 members of whom 32 are elected by the Chartered Accountants and remaining 8 are nominated by the Central Government generally representing the Comptroller and Auditor General of India, Securities and Exchange Board of India, Ministry of Corporate Affairs, Ministry of Finance and other stakeholders.

Over a period of time the ICAI has achieved recognition as a premier accounting body not only in the country but also globally, for maintaining highest standards in technical, ethical areas and for sustaining stringent examination and education standards. Since 1949, the profession has grown leaps and bounds in terms of members and student base.

• Regulate the profession of Accountancy
• Education and Examination of Chartered Accountancy Course
• Continuing Professional Education of Members
• Conducting Post Qualification Courses
• Formulation of Accounting Standards
• Prescription of Standard Auditing Procedures
• Laying down Ethical Standards
• Monitoring Quality through Peer Review
• Ensuring Standards of performance of Members
• Exercise Disciplinary Jurisdiction
• Financial Reporting Review
• Input on Policy matters to Government

A pilot project is is set to begin this September in 54 districts across the country.   | Photo Credit: K.R. Deepak

Dassault sees newer pastures in India as OEMs opt for tech upgrade

France-based Dassault Systémes said it sees newer pastures in India for its manufacturing-solutions business as many players have started setting up new factories or upgrading their existing facilitie

 France-based Dassault Systémes said it sees newer pastures in India for its manufacturing-solutions business as many players have started setting up new factories or upgrading their existing facilities to add in features like Internet of Things (IoT), robotics and 3D printing to their processes.

“Many OEMs in India feel the need to upgrade their manufacturing processes in tune with today’s technology. Some of the processes of manufacturing in their facilities are even obsolete. Moreover, in India, we see newer factories being set up due to the government’s thrust on ease of doing business. They too require manufacturing solutions, this  is where we see the opportunity,” said Samson Khaou, Managing Director India, Dassault Systémes.

The nature of mobility and transportation in India has been undergoing a rapid transformation. The government’s efforts to bring more electric vehicles on the road has prodded many automakers to upgrade to digitalisation of manufacturing processes to include virtual design, shorter lead times and simulation.
Recently, Dassault launched the 3DExperience Twin model, which would allow manufacturers to design and map the entire model of the factory. “We have nearly 8,000 clients in India, including Ashok Leyland, VE Commercial Vehicles and Hero Moto Corp, who are slowly adopting digitalising manufacturing processes. Through 3DExperience Twin system, they will be able to reduce the lead time the product takes to reach the market,” Khaou said.

A recent study by a global consulting firm estimated that the manufacturing sector may form 25-30 per cent of the country’s GDP and make 90 million new domestic jobs by 2025. “Digitalisation of the sector brings new opportunities for collaboration, usage of big data analytics, real-time data acquisition and digital continuity from ideation to design to production and even to ownership,” said Olivier Lahaye, Vice President, WW, DELMIA, Dassault.

THE 3DEXPERIENCE TWIN

Manufacturers worldwide are building sensors and communications into their devices to collect real-time data. The most advanced are feeding this data into what analysts are calling “digital twins,” creating real-time feedback loops between in-use devices and the 3D simulations used to create them.

What is "THE 3DEXPERIENCE TWIN"?

Like a “digital twin,” a 3DEXPERIENCE twin represents an object, system, facility or environment that does or will exist in the real world. However, unlike digital twins, a 3DEXPERIENCE twin replicates an object as a dynamic 3D model, at every stage of its life. From the regulatory requirements and materials that influence its design and manufacture to the customer’s experience, every stage can be simulated, manipulated and experimented upon in a 3DEXPERIENCE twin.Because it is generated from a single data model on a unified platform – an advantage no other twin can claim – a 3DEXPERIENCE twin also ensures unmatched accuracy and fidelity. When these powerful, simulated environments are used to analyze real-time data from in-operation devices, the result is an unparalleled ability to experiment in the digital world, which in turn creates a flawless experience in the real world. Hundreds, thousands or even millions of 3DEXPERIENCE twins can interact in a fully accurate and dynamic environment such as Virtual Singapore.

New India aims at 18 % growth

New India Assurance is targeting an 18% growth in premium income this financial year, according to Chairman and Managing Director G. Srinivasan.

The company registered premium income of Rs. 26,500 crore last financial year, as against the target of Rs. 26,000 crore. The growth last year was 19%. During the last two years, crop insurance was a driver of growth. If Ayushman Bharat, which is expected to be rolled out this year materialises, the growth rate will be higher. “We have not factored it in the target. It is going to be run by the State Governments. We will be there,” he said.

Health, motor and other retail products would be the growth drivers.

The New India Assurance Co. Ltd., based in Mumbai, Maharashtra is a public sector general insurance company of India.It is the "largest general insurance company of India on the basis of gross premium collection inclusive of foreign operations". It was founded by Sir Dorabji Tata in 1919, and was nationalised in 1973.

Previously it was a subsidiary of the General Insurance Corporation of India (GIC). But when GIC became an re-insurance company as per the IRDAAct 1999, its four primary insurance subsidiaries New India Assurance, United India Insurance, Oriental Insurance and National Insurance got autonomy.

New India Assurance operates both in India and foreign countries. In the recent past it has collaborated with some of the leading public sector bank of India and Financial Institutions to increase its distribution network.

3.

RBI raises rates after 4.5 years as crude price surges

Repo rate now higher by 25 basis points; central bank maintains neutral stance

The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Wednesday increased the repo rate by 25 basis points to 6.25%.

The MPC arrived at the unanimous decision as the outlook for inflation had become ‘uncertain’ following a surge in international crude oil prices.

This is the first rate hike in four-and-a-half years; the last was in January 2014.

Interest rates may go up

Banks may have anticipated the RBI’s move as major lenders such as the State Bank of India, the ICICI Bank and the Punjab National Bank had raised their lending rates last week.

While banks that have already raised rates may not increase them immediately, those yet to act are likely to announce revisions.

The RBI increased its inflation projection to 4.8%-4.9% in the first half (H1) of the financial year and 4.7% in the second half, as compared with 4.7-5.1% in H1 and 4.4% for H2.

“A major upside risk to the baseline inflation path in the April resolution has materialised, viz., 12% increase in the price of the Indian crude basket, which was sharper, earlier than expected and seems to be durable,” the central bank said, adding that the Indian crude basket surged to $74 a barrel from $66 since the last policy meeting in April.

“Crude oil prices have been volatile and this imparts considerable uncertainty to the inflation outlook — both on the upside and the downside,” the RBI said. Consumer price index-based inflation, or retail inflation, rose to 4.6% in April from 4.28% in March.

The central bank also observed that inflation expectations were on the rise, evident from its survey of households.

While the central bank has increased the inflation projection, it has maintained the ‘neutral’ stance for monetary policy, meaning interest rates can move either way.

“It is not conflicting at all… a neutral stance leaves all options open and other central banks also do the same,” RBI governor Urjit Patel said in the post-policy media interaction, asked if an increase in inflation projection along with a neutral stance sent conflicting signals.

“The committee felt there was enough uncertainty for us to keep the neutral stance and yet respond to the risk to inflation targets that has emerged in recent months,” Dr. Patel said.

The outlook for GDP growth for 2018-19 has been retained at 7.4% as projected in the April policy.

Related Information :

• Repo Rate: The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).
• [Repo means Re purchase option]
• Reverse Repo Rate: The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.
• Liquidity Adjustment Facility (LAF): The LAF consists of overnight as well as term repo auctions. Progressively, the Reserve Bank has increased the proportion of liquidity injected under fine-tuning variable rate repo auctions of range of tenors. The aim of term repo is to help develop the inter-bank term money market, which in turn can set market based benchmarks for pricing of loans and deposits, and hence improve transmission of monetary policy. The Reserve Bank also conducts variable interest rate reverse repo auctions, as necessitated under the market conditions.

The Monetary Policy Committee (MPC) is a committee of the Central Bank in India (Reserve Bank of India), headed by its Governor, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.

The MPC replaces the current system where the RBI governor, with the aid and advice of his internal team and a technical advisory committee, has complete control over monetary policy decisions. A Committee-based approach will add lot of value and transparency to monetary policy decisions.

Constitution of the MPC
The Central Government constitutes the MPC through a notification in the Official Gazette. Altogether, the MPC will have six members, - the RBI Governor (Chairperson), the RBI Deputy Governor in charge of monetary policy, one official nominated by the RBI Board and the remaining three members would represent the Government of India.

These Government of India nominees are appointed by the Central Government based on the recommendations of a  search cum selection committee consisting of the cabinet secretary (Chairperson), the RBI Governor,  the secretary of the Department of Economic Affairs, Ministry of Finance, and three experts in the field of economics or banking as nominated by the central government.

The three central government nominees of the MPC appointed by the search cum selection committee will hold office for a period of four years and will not be eligible for re-appointment. These three central government nominees in MPC are mandated to be persons of ability, integrity and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy. RBI Act prohibits appointing any Member of Parliament or Legislature or public servant, or any employee / Board / committee member of RBI or anyone with a conflict of interest with RBI or anybody above the age of 70 to the MPC. Further, central government also retains powers to remove any of its nominated members from MPC subject to certain conditions and if the situation warrants the same.

Functions of the MPC
Under the Monetary Policy Framework Agreement, the RBI will be responsible for containing inflation targets at 4% (with a standard deviation of 2%) in the medium term (For more details seehere). Under Section 45ZA(1) of the RBI Act, 1934, the Central Government determines the inflation target in terms of the Consumer Price Index, once in every five years in consultation with the RBI. This target would be notified in the Official Gazette. Though the central bank already had a monetary framework and was implementing the monetary policy, the newly designed statutory framework would mean that the RBI would have to give an explanation in the form of a report to the Central Government, if it failed to reach the specified inflation targets. It shall, in the report, give reasons for failure, remedial actions as well as estimated time within which the inflation target shall be achieved. (The factors that constitute failure shall be such as may be notified by the Central Government in the Official Gazette.) Further, RBI is mandated to publish a Monetary Policy Report every six months, explaining the sources of inflation and the forecasts of inflation for the coming period of six to eighteen months.

Given this backdrop, MPC decides the changes to be made to the policy rate (repo rate) so as to contain the inflation within the target level specified to it by the Central Government.  Each Member of the Monetary Policy Committee has to write a statement specifying the reasons for voting in favour of, or against the proposed resolution, and the same alongwith the resolution adopted by the MPC is published as minutes of the meeting by RBI after 14 days of the said meeting. In addition, subsequent to the MPC meeting, RBI has to publish a document explaining the steps to be taken by it to implement the decisions of the Monetary Policy Committee, including any changes thereto.

'Consumer Price Index'

 A comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy is called consumer price index.

 The calculation involved in the estimation of CPI is quite rigorous. Various categories and sub-categories have been made for classifying consumption items and on the basis of consumer categories like urban or rural. Based on these indices and sub indices obtained, the final overall index of price is calculated mostly by national statistical agencies. It is one of the most important statistics for an economy and is generally based on the weighted average of the prices of commodities. It gives an idea of the cost of living.

Inflation is measured using CPI. The percentage change in this index over a period of time gives the amount of inflation over that specific period, i.e. the increase in prices of a representative basket of goods consumed.

In India CPI is released by Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation.

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2.Centre to start measuring ‘green GDP’ of States

Figures will be used to calculate land acquisition costs, climate mitigation funds

India’s environmental diversity and riches are universally recognised but have never been quantified. Starting this year, the government will begin a five-year exercise to compute district-level data of the country’s environmental wealth. The numbers will eventually be used to calculate every State’s ‘green’ Gross Domestic Product (GDP). The metric will help with a range of policy decisions, such as compensation to be paid during land acquisition, calculation of funds required for climate mitigation, and so on.

“This is the first time such a national environment survey is being undertaken,” said Anandi Subramanian, Senior Economic Adviser, Union Environment Ministry.

A pilot project is set to begin this September in 54 districts. Land will be demarcated into “grids” with about 15-20 grids per district. These will capture the diversity in the State’s geography, farmland, wildlife, and emissions pattern, and will be used to compute a value, she added.

“If, for instance, there’s a no-go zone, we need to calculate what its economic impact is,” she told The Hindu on the sidelines of a conference to mark World Environment Day on June 5.

Ms. Subramanian didn’t specify the budget for the exercise but said that the funds for the pilot project “were already available.”

Much of the data required for the inventory would be sourced from datasets that already exist with other government ministries.

The government has also launched a ‘green skilling’ programme under which youth, particularly school dropouts, would be trained in a range of ‘green jobs’— as operators of scientific instruments used to measure environmental quality, as field staff in nature parks, and as tourist guides. Some of the labour required for the survey would also be sourced from the green-skilled workforce.

Green GDP is expected to account for the use of natural resources as well as the costs involved. This includes medical costs generated from factors such as air and water pollution, loss of livelihood due to environmental crisis such as floods or droughts, and other factors

The externalities of economic growth that are not factored into the conventional GDP numbers have a massive monetary value. A recent study by the World Bank estimates that in 2013 India suffered a loss of over $550 billion, or 8.5 per cent of GDP, just as a result of air pollution. The economic cost of other impacts, such as water pollution and land degradation, among several others, would be much more.

“These costs are not incorporated in the GDP. India is today one of the largest exporters of some commodities. But, the sustainability of these businesses is a question. We have finite land, finite natural resource. This has a direct impact on the economy” 

One such example comes from the WWF’s ‘Living Planet’ report, which finds that “25 per cent of India’s total land is undergoing desertification, while 32 per cent is facing degradation.” This has a direct impact on the future food production capacity of our agrarian economy as the country could see a 10-40 per cent loss in crop production by the end of the century.

Countries such as China and Norway have already experimented with green accounting. China launched the process in 2004, only to drop it in 2007. Factoring in environmental costs had a significant impact on the country’s perceived “economic growth”, resulting in a hasty departure.

“It has to be a concerted effort across the world to factor in environmental and social costs” .

“Otherwise it won’t be successful, as no one wants their growth figures to drop.”

Green Gross Domestic Product (green GDP or GGDP)

The green gross domestic product (green GDP or GGDP) is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change. Some environmental experts prefer physical indicators (such as "waste per capita" or "carbon dioxide emissions per year"), which may be aggregated to indices such as the "Sustainable Development Index".

Calculation

Calculating green GDP requires that net natural capital consumption, including resource depletion, environmental degradation, and protective and restorative environmental initiatives, be subtracted from traditional GDP.Some early calculations of green GDP take into account one or two but not all environmental adjustments. These calculations can also be applied to net domestic product (NDP), which deducts the depreciation of produced capital from GDP. In each case, it is necessary to convert the resource activity into a monetary value, since it is in this manner that indicators are generally expressed in national accounts.

DEBATE:

Some critics of environmentally adjusted aggregates, including GDP, point out that it may be difficult to assign values to some of the outputs that are quantified. This is a particular difficulty in cases where the environmental asset does not exist in a traditional market and is therefore non-tradable. Ecosystem services are one example of this type of resource. In the case that valuation is undertaken indirectly, there is a possibility that calculations may rely on speculation or hypothetical assumptions.

Supporters of adjusted aggregates may reply to this objection in one of two ways. First, that as our technological capabilities increase, more accurate methods of valuation have been and will continue to develop. Second, that while measurements may not be perfect in the cases of non-market natural assets, the adjustments they entail are still a preferable alternative to traditional GDP.

A second objection may be found in the Report by the Commission on the Measurement of Economic Performance and Social Progress, when Stiglitz, Sen and Fitoussi remark that:

"there is a more fundamental problem with green GDP, which also applies to Nordhaus and Tobin's SMEW and to the ISEW/GNI indices. None of these measures characterize sustainability per se. Green GDP just charges GDP for the depletion of or damage to environmental resources. This is only one part of the answer to the question of sustainability."

Related INFORMATION of GDP and NDP :

Definition of 'Gross Domestic Product'

Definition: GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year. GDP growth rate is an important indicator of the economic performance of a country. 

Description: It can be measured by three methods, namely, 

1. Output Method: This measures the monetary or market value of all the goods and services produced within the borders of the country. In order to avoid a distorted measure of GDP due to price level changes, GDP at constant prices o real GDP is computed. GDP (as per output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies. 

2. Expenditure Method: This measures the total expenditure incurred by all entities on goods and services within the domestic boundaries of a country. GDP (as per expenditure method) = C + I + G + (X-IM) C: Consumption expenditure, I: Investment expenditure, G: Government spending and (X-IM): Exports minus imports, that is, net exports. 

3. Income Method: It measures the total income earned by the factors of production, that is, labour and capital within the domestic boundaries of a country. GDP (as per income method) = GDP at factor cost + Taxes – Subsidies. 

In India, contributions to GDP are mainly divided into 3 broad sectors – agriculture and allied services, industry and service sector. In India, GDP is measured as market prices and the base year for computation is 2011-12. GDP at market prices = GDP at factor cost + Indirect Taxes – Subsidies 

NET DOMESTIC PRODUCT(NDP) 

The net domestic product (NDP) equals the gross domestic product (GDP) minus depreciation on a country's capital goods.

[Depreciation we can call wear and tear of machinery or  goods over a period of time,which tells we need to buy or make some arrangements to compensate the loss of capital asset  ]

Net domestic product accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. The depreciation accounted for is often referred to as "capital consumption allowance" and represents the amount of capital that would be needed to replace those depreciated assets.

If the country is not able to replace the capital stock lost through depreciation, then GDP will fall. In addition, a growing gap between GDP and NDP indicates increasing obsolescence of capital goods, while a narrowing gap means that the condition of capital stock in the country is improving. It reduces the value of capital that is why it is separated from GDP to get NDP.

1.Achievements of Power Ministry during last 4 years

Posted On: 05 JUN 2018 2:58PM by PIB Delhi

(i)Generation capacity-

• 1 Lakh MW generation capacity added. (2,43,029 MW in March 2014 to 3,44,002 MW in March 2018)
• India emerges as net exporter of electricity. 7203 MU supplied to Nepal, Bangladesh and Myanmar in FY 2017-18.
• Energy deficit reduced from 4.2 per cent (in FY 2013-14) to 0.7 per cent (in FY 2017-18)

(ii) One Grid One Nation-

• Expansion of transmission grid by 1 lakh ckm
• Highest ever transformation capacity addition of 86,193 MVA in FY 2017-18
• 26 projects worth Rs. 48,427 crore awarded through Tariff Based Competitive Bidding
• Inter-regional transfer capacity addition more than tripled (16,000 MW in FY 2010-14 and 50,500 MW in FY 2014-18)

(iii)DeenDayalUpadhyaya Gram JyotiYojana (DDUGKY)

• 100 per cent of village electrification
• Outlay of Rs. 75,893 crore
• Funds to states increased by 2.5 times (Rs. 10,873 crore in FY 2010 -14 and Rs 24,890 crore in 2014-18)
• 2,56,750 km HT and LT lines
• 4,09,989 distribution transformers

(viii) Integrated Power Development Scheme (IPDS)

• Outlay of Rs. 65,424 crore
• 1376 towns IT enabled
• 1900 additional towns under progress
• 1156 towns reported reduction in AT&C losses
• 1,29,093 km HT and LT lines
• 66,947 distribution transformers

(vii) UDAY

• More than Rs 20,000 crore interest cost saved by DISCOMs under UDAY
• Reduction in AT&C losses in 17 states within one year of operation
• Revenue gaps bridged by 33 per cent in one year of operation
• India’s rank improved to 29 in 2018 from 111 in 2014on World Bank’s Ease of Getting Electricity Ranking.

(vi) SAUBHAGYA

• Launched for universal electrification
• Camps organised at village level. Minimum documentation required
• Special drive for economically weaker sections under Gram SwarajAbhiyan
• 60.34 lakh housholds electrified since 11th Oct, 2017

(ix) Power for All 24*7 –

• Joint initiative of Govt of India and State Govts.
• Roadmap for 24*7 power supply prepared. States ready to ensure 24*7 Power for All from 1st April, 2019.

(x) Focus on North-East region-

• Electrification of 5855 villages and intensive electrification of 9004 villages completed.
• 130 towns IT enabled.
• 52.28 lakh LED bulbs distributed under UJALA
• Rs. 9866 crore projects undertaken for strengthening/development of intra-state transmission

(iv)UJALA

• 107 crore LED bulbs distributed
• 30.01 crore LED bulbs distributed under UJALA resulting in saving of 15,500 crore per year
• 77.99 crore additional LED bulbs distributed by industry.
• 87 per cent reduction in LED bulb procurement cost through demand aggregation.

(v) 4376 MW hydel capacity addition (FY 2014-18)

Innovations and Initiatives-

Electric vehicles –

• Nolicence required for charging stations
• Procurement of 10,000 e-vehicles for Government institutions

Smart Metering-

• Procurement of 50 lakh smart meters done.
• 1 crore prepaid meters under procurement

Energy efficiency-

• Star labelling program saved energy worth Rs. 22,500 crore.
• Energy efficiency measures through PAT in large industries saved energy worth Rs. 9500 crore

• Energy Conservation Building Code for energy efficient buildings launched in June, 2017

Digital initiatives-

• e-Bidding and e-Reverse Auction for short and medium term procurement of power.
• Enabling payments through NPCI platforms such as BHIM, BBPS, Bharat QR etc. More than 24 crore digital transactions in FY 2017-18 for electricity bill payments.

To bring transparency and to disseminate information to public at large following Apps are launched by the Ministry of Power:

1. SAUBHAGYA – App for tracking household electrification.

2. VidyutPravah – The Mobile/Web App provides real time information of current demand met, shortages if any, surplus power available and the prices in Power Exchange.

3. UJALA (UnnatJyoti by Affordable LED`S for All) – App provides real time updates on the LED distribution happening across the country.

4. UrjaMitra – monitoring of power availability and sending power cut information through SMS

5. MERIT–information pertaining to marginal variable cost and source wise purchase of electricity.

6. UDAY- Allows people to compare DISCOMs on the basis of 26 major performance parameters.

7. URJA (Urban JyotiAbhiyaan) – It is an informative App for Urban Distribution Sector. It captures Consumer centric parameters from the IT systems created under IPDS.

8. TARANG (Transmission App for real time monitoring & Growth) – It is an IT Web/mobile based platform to provide status of both inter and intra state Transmission Projects in the country. This platform also shows the prospective inter state as well as intra state Transmission Projects.

9. DEEP e-bidding (Discovery of Efficient Electricity Price) – The portal will provide a common e-bidding platform with e-reverse auction facility to facilitate nation-wide power procurement through a wider network so as to bring uniformity and transparency in the process of power procurement.

10. Ash Track- linking fly ash users and power plants for better ash utilisation.

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Export from Special Economic Zones jumped 18% in FY18

Far higher ease of doing business as compared to the rest of India; export promotion council seeks removal of taxes and other such barriers for future growth

Export from Special Economic Zones (SEZs) rose 18 per cent in 2017-18, due to progress in terms of clearances and facilities.

Data compiled by the Export Promotion Council of India for Export Oriented Units and SEZs (EPCES) under the ministry of commerce reported total merchandise and software export of Rs 5,513 billion in FY18, from Rs 4,686 bn the previous year.

The jump was despite levy of Minimum Alternate Tax (MAT), imposition of Dividend Distribution Tax (DDT) and the impending sword of a sunset clause from 2020, when tax benefits are to end. EPCES has urged the government to continue with the exemptions granted to SEZs and EOUs, and to remove MAT and DDT from these zones. There are 204 of these in the country.

"SEZs are the only location where production and services continue without obstruction or hindrance of uninvited, unwanted visitors, a norm in the Domestic Tariff Area (DTA). A safe, secure and peaceful environment, flush with abundant green belts and conducive ambience, definitely helps increase productivity and defect-free products," said Vinay Sharma, officiating chairman of EPCES.

While merchandise export was Rs 2,735 bn in FY18, software export rose 17 per cent to Rs 2,779 bn.

In the SEZs, single-window clearance, approachable development commissioners and approval for new units or changes in the Letter of Permission at monthly meetings of unit approval committees are given as reasons for the higher 'Ease of Doing Business'. As against business in the DTA, where one has to deal with multiple authorities and departments.

"For any foreign investor looking for 500 acres or even more to set up a plant, only an SEZ can allot the land quickly -- land without any encumbrance, litigation or disruption.

A single-window clearance can even help the investor start construction in four to six weeks, only possible in SEZs. Investors from other countries may choose to locate their production facilities for export to other countries or to sell in domestic markets, based upon their (regional) choice. It is a boon for anyone to get into production mode very quickly. The ease of doing business, coupled with availability of clean and dependable power, water and other resources, along with educated and trained personnel, is available across SEZs in India," said Sharma.

The top country for export in value remains the United Arab Emirates (Rs 496.9 bn), followed by America (Rs 477 bn). The year gone by also saw an 80 per cent jump in export to Saudi Arabia, along with a surge to Britain, Australia and Singapore.

There also saw an 84 per cent rise in export to China. Also, of 23 per cent to Mozambique, 25 per cent to Italy and 20 per cent to Korea.

"We invite investors to the India SEZs and assure full support of the council to help them set up their business in any of the SEZs," said Sharma.

Special Economic Zone :

The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. The prime

objective was to enhance foreign investment and provide an internationally competitive and hassle free

environment for exports. The idea was to promote exports from the country and realising the need that level

playing field must be made available to the domestic enterprises and manufacturers to be competitive globally. 

A legislation has been passed permitting SEZs to offer tax breaks to foreign investors. Over half a decade has passed since its inception, but the SEZ Bill has

certain drawbacks due to the omission of key provisions that would have relaxed rigid labour rules. This has lessened India's chance of emulating the success of

the Chinese SEZ model, through foreign direct investment (FDI) in export­oriented manufacturing.

The policy relating to SEZs, so far contained in the foreign trade policy, was originally implemented through piecemeal and ad hoc amendments to different laws,

besides executive orders. In order to avoid these pitfalls and to give a long­term and stable policy framework with minimum regulation, the SEZ Act, '05, was

enacted. The Act provides the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

Since the rules will take care of many issues, the Special Economic Zone Act is likely to take some more time and the government is unlikely to notify them before

September 1. The commerce and industry ministry is examining the domestic industry's comments on draft SEZ rules. A meeting of development commissioners of

all SEZs will be convened soon to discuss the changes that need to be incorporated before they are notified to be placed before the parliament for final approval. 

The objective of the SEZ Act was to create a hassle­free regime and the rules would be formulated keeping this in mind. The ministry is also holding talks with state

governments as they have to play an important role in the development of SEZs.

What is a Special Economic Zone(SEZ)?

Special Economic Zone (SEZ) is a specifically delineated duty­free enclave and shall be deemed to be foreign territory for the purposes of trade operations and

duties and tariffs. In order words, SEZ is a geographical region that has economic laws different from a country's typical economic laws. Usually the goal is to

increase foreign investments. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia. North

Korea has also attempted this to a degree.

Where are SEZs located in India? 

At present there are eight functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu),

Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida (Uttar Pradesh) in India. Further an SEZ in Indore (Madhya Pradesh) is now ready for operation. 

In addition 18 approvals have been given for setting up of SEZs at Positra (Gujarat), Navi Mumbai and Kopata (Maharashtra), Nanguneri (Tamil Nadu), Kulpi and

Salt Lake (West Bengal), Paradeep and Gopalpur (Orissa), Bhadohi, Kanpur, Moradabad and Greater Noida (UP), Vishakhapatnam and Kakinada (Andhra

Pradesh), Vallarpadam/Puthuvypeen (Kerala), Hassan (Karnataka), Jaipur and Jodhpur ( Rajasthan) on the basis of proposals received from the state

governments

Who can set up SEZs? Can foreign companies set up SEZs?

Any private/public/joint sector or state government or its agencies can set up an SEZ. 

Yes, a foreign agency can set up SEZs in India.

What is the role of state governments in establishing SEZs?

State governments will have a very important role to play in the establishment of SEZs. Representative of the state government, who is a member of the inter­

ministerial committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the ministry of commerce and industry

(department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

Are SEZ's controlled by the government?

In all SEZs the statutory functions are controlled by the government. Government also controls the operation and maintenance function in the seven central

government controlled SEZs. The rest of the operations and maintenance are privatised. 

Are SEZs exempt from labour laws?

Normal labour laws are applicable to SEZs, which are enforced by the respective state governments. The state governments have been requested to simplify the

procedures/returns and for introduction of a single window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

Who monitors the functioning of the units in SEZ? 

The performance of the SEZ units are monitored by a unit approval committee consisting of development commissioner, custom and representative of state

government on an annual basis.

What are the special features for business units that come to the zone?

Business units that set up establishments in an SEZ would be entitled for a package of incentives and a simplified operating environment. Besides, no license is

required for imports, including second hand machineries.

Will it be possible to supply to other units in SEZ? 

Yes. Inter­unit sales are permitted as per the SEZ policy. A buyer procuring from another unit pays in foreign exchange.

How do SEZs help a country's economy? 

SEZs play a key role in rapid economic development of a country. In the early 1990s, it helped China and there were hopes (perhaps never very high ones,

admittedly) that the establishment in India of similar export­processing zones could offer similar benefits ­­ provided, however, that the zones offered attractive

enough concessions. 

Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red tape and strict labour laws. To date, these restrictions have

ensured that India has been unable to compete with China's massively successful light­industrial export machine. India's goods exports in 2004 were an estimated

$68 bn compared with $594 bn for China, and the stock of inward FDI, at $42 bn, was less than a tenth of China's $544 bn.

About FDI in India

India has already marked its presence as one of the fastest growing economies of the world. It has been ranked among the top 10 attractive destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly.

The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors and simplifying other conditions of the FDI policy. FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in the country.

Minimum Alternate Tax (MAT) is a tax effectively introduced in India by the Finance Act of 1987, vide Section 115J of the Income Tax Act, 1961 (IT Act), to facilitate the taxation of ‘zero tax companies’ i.e., those companies which show zero or negligible income to avoid tax. Under MAT, such companies are made liable to pay to the government, by deeming a certain percentage of their book profit^[1] as taxable income.

MAT is an attempt to reduce tax avoidance; it was introduced to contain the practices followed by certain companies to avoid the payment of income tax, even though they had the “ability to pay”.

MAT is applied when the taxable income calculated as per the normal provisions in the IT Act is found to be less than 18.5% of the book profits.

MAT is levied at the rate of 18.5% of the book profits. MAT rate has been progressively increased from 7.5% in 2000 to 18.5% in 2015. In other words, the tax computed by applying 18.5% (plus surcharge and cess as applicable) on book profit is called MAT.

Normal tax rate applicable to an Indian company is 30% (plus cess and surcharge as applicable), which has been decided to be progressively reduced to 25% by 2019. A company has to pay higher of normal tax liability or liability as per MAT provisions.

MAT is applicable to all corporate entities, whether public or private.  However, it does not apply to any income accruing or arising to a company from life insurance business. Nor does it apply to shipping income liable to tonnage taxation^[2] as provided in section 115V to 115VZC of the IT Act.

The corresponding tax similar to MAT, but imposed on individuals or non-corporate entities, who claim certain deductions under the IT Act (deduction under section 80H to 80RRB (except 80P), deduction under section 35AD and deduction under section 10AA), is known as Alternate Minimum Tax (AMT). The rate of AMT is also at 18.5%.

Context 
A company is liable to pay income tax on the profit earned by it (as calculated under the provisions of Companies Act, 2013) after making certain adjustments to the book profit as permissible under the IT Act. However, many companies, despite showing high profits in their books of accounts and paying substantial dividends, were observed to be paying marginal or no tax. This was done by taking advantage of various tax concessions and other incentives in a manner such as to avoid paying taxes. (eg. Depreciation allowances, exemptions etc.) MAT was thus envisaged as a mechanism for levying a minimum tax on such companies, by deeming a certain percentage of their book profits, computed under the Companies Act, as taxable income.

What is DDT, and why they say it's being revised? 

The government levies a Dividend Distribution Tax (DDT at the effective rate of 20.36

percent (15 percent tax plus surcharge and cess) when the companies pay dividend to

shareholders. However, dividends are exempt in the hands of the recipient shareholders.

Those who oppose this tax argue that it discourages companies from paying dividends,

which dampens investor confidence. In the Union Budget 2016, the government

introduced tax on more than Rs 10 lakh dividend in the hands of the shareholders at a flat

rate of 10%. There are reports that Budget 2018 might propose a withdrawal of DDT and

tax dividends in the hands of the recipient shareholders. According to experts, the new

system of taxation will encourage companies to announce higher dividends.

Dividend Distribution Tax

Dividend is the return given by a company to its shareholders out of profits earned by the company in a particular year. Dividend constitutes income in the hands of the shareholders which ideally should be subject to income tax. However, the income tax laws in India provides for an exemption of dividend income received from Indian companies in the hands of the investors by levying a tax called the Dividend Distribution Tax (DDT) on the company paying dividend. The provisions relating to DDT are governed by Section 115O.

DDT is also applicable on mutual funds:

a)       On Debt oriented funds DDT is at the rate of 25 percent (29.12 percent including surcharge and cess).

b)       However, equity-oriented funds were exempt from DDT. Budget 2018 introduced, tax on equity oriented mutual funds at the rate of 10 percent (11.648 percent including surcharge and cess).

c)       The dividend received by investors is exempt in hands of the fund holder

Budget 2018: FM proposes dividend distribution tax in equity

MF, dividend seekers to be hit

Finance minister Arun Jaitley in his Budget 2018 speech has proposed to introduce

dividend distribution tax (DDT) in case of equity mutual funds. 

The finance minister has proposed to introduce a tax on distributed income by equity ­oriented mutual funds at the rate of 10 percent (

11.648 percent including surcharge and cess) , to provide a level field across growth oriented and dividend distributing schemes. 

The proposed change in Capital Gains Tax will bring marginal revenue gain of about Rs. 20,000 crore in the first year, in view of

grandfathering.

Investors relying on dividends from equity funds such as balanced funds would have to reconsider their investment strategies. DDT will

reduce the in­hand return to investor, if the dividend option is opted for. Dividend, however, remains tax­free in the hands of the investor.

The fund houses will have to deduct DDT before distributing dividend. 

Hence, the growth option could be more suitable and to meet regular income needs, the Systematic Withdrawal Plan (SWP) option may

have to be used by investors. In SWP, the gains will still be taxed and therefore may not help much in reducing tax liability. 

Mutual fund schemes that invest less than 65 per cent of the corpus in equity are categorised as non­equity funds such as debt mutual

funds for the purpose of taxation. 

DDT on all non­equity funds such as money market, liquid, and debt funds is 25 percent plus 12 percent surcharge plus 3 percent cess,

totalling to 28.84 percent. 

Any mutual fund scheme can distribute dividends for its unit holders from the realised profits in its portfolio. Realised profits are the gains

made by the scheme from instruments by selling them at a price higher than what they were purchased for, or when the securities held

in the scheme receive dividend or interest (in the case of debt funds) from the instruments held. 

Impact on the investor

Mutual funds that invest less than 65% of the corpus in equity are termed as non-equity funds like debt funds for taxation purposes.

Investors who are looking for periodic income from dividends of equity oriented funds should reconsider their strategy. Because of the taxation on returns would leave them with a reduced in-hand return.

However, the dividend remains tax-free in the hands of the investor. The fund house will deduct the DDT before any dividend payments. Dividend schemes will be non-beneficial for LTCG below Rs. 1 Lakh as other schemes are exempt from tax.