By Amit Singhania
Indian Union Budget 2021-22: In the midst of an financial slowdown induced by the ongoing pandemic, the Hon’ble Finance Minister need to grapple with the difficult process of encouraging consumption for financial revival against our peaking fiscal deficit in the upcoming Union Budget, 2021. Tax proposals will play a essential part in this balancing act.
To start with, the Government is most likely to concentrate on the fundamentals, for providing relief on the private earnings tax front. For instance, the Government may well take into account continuing the decreased TDS prices by 25% for a different fiscal year to make certain additional liquidity. Additional relief in the type of unique deductions for COVID associated overall health expenditures would be a welcome step also. Other measures, such as escalating the fundamental exemption limit or escalating the threshold of section 80C deductions beneath the Income-tax Act, could also encourage saving and make certain more spending cash in the hands of person and HUF taxpayers.
A fillip is also needed for the pharmaceutical and overall health sector that has been working relentlessly in the pandemic. Weighted deductions for expenditure incurred on study and improvement activities for establishing a viable and successful vaccine may well make a comeback. Deductions for capital expenditure incurred towards establishing infrastructure and provide chain for storage, dissemination, and application of vaccines and other critical health-related goods will be welcome. The existing deduction for capital expenditure incurred towards creating and operating a hospital with at least one hundred beds must also be permitted to smaller sized facilities to construct health-related infrastructure. Likewise, to encourage spending on coaching and hiring of skilled healthcare specialists, the existing deductions for hiring new workers beneath section 80JJA could be enhanced from 30% to 50%. This could be coupled with raising the threshold of total emoluments of such added workers. Such measures will support construct capacity and address the expanding price of unemployment due to loss of jobs in the course of the financial slowdown.
The Government could take into account permitting deductions on CSR spends, creating COVID vaccines accessible to workers and associated causes. They could also take into account permitting tax deductions to encourage corporate spending on overall health associated charitable and philanthropic causes.
Besides the incumbent want to reign in COVID associated amendments, a slew of rationalizing measures in the corporate tax space are also encouraged by sector stakeholders. Headline tax prices for LLPs must be brought at par with most businesses now enjoying an successful tax price of 25.6% sans deductions. Similarly, alternate minimum tax provisions must be completed away with, for such LLPs. Further, extending the presumptive taxation regime beneath section 44AD to LLPs could support bring them at par with resident businesses and partnerships.
Relaxing of restrictions such as turnover thresholds for tax neutral conversion of a corporation to an LLP will also be welcome. In the very same spirit, conversion of sole proprietorship and partnership firms to corporation, and conversion of corporation to LLP which are viewed as tax neutral from a capital gains standpoint must be incorporated as exceptions to Section 56(2)(x). As an added measure, permitting losses to be set-off for an added period beyond 8 years could support in reviving corporations, in particular SMEs reeling with losses and business enterprise disruptions due to the pandemic.
Additionally, the Government could take into account lowering the holding period from 36 months to 24 months for affording favorable lengthy-term capital gains remedy on transfer of actual estate assets to encourage actual estate activity. Similarly, holding period for ReIT units listed on Indian stock exchange must be decreased from 36 months to 12 months in line with listed equity shares to incentivize investment. Some tax sops in the begin-up space would also support induce development.
It would also be expedient for the Government to introduce measures to improve tax collections when easing compliance for taxpayers. In this path, Vivad se Vishwas Scheme, 2020 has currently noticed a tax collection of more than INR 75 thousand crores. Extending the scheme beyond the existing January 31, 2020 deadline will only help additional tax collections when lowering the pending litigation at many forums.
As an added measure, with faceless appeals to be implemented quickly, the Government could take into account introducing a affordable limitation period on the adjudication of instances at the initially appellate stage, exactly where appeals stay pending for lengthy periods of time.
Needless to say, a lot rides on Union Budget 2021 as it will set the tone for India Inc.’s trajectory for the next decade.
(Amit Singhania is Partner & Suyash Sinha, Senior Associate at Shardul Amarchand Mangaldas & Co. Views expressed are the author’s personal.)tax