By Himanshu Parekh
On February 1, the finance minister unravelled a bold and ambitious Budget by providing a increase to a humungous spending strategy to dig out the Indian economy from a pandemic-induced slump. The key thrust of the very first paperless Budget was on the themes of well being, human capital, innovation & R&D, physical infrastructure and providing impetus to the government’s disinvestment system. In her Budget speech, even though the finance minister spoke only about a handful of procedural and administrative tax modifications, the Finance Bill consists of a number of far-reaching proposals on the tax front.
At the outset, the finance minister deserves to be complimented for the reason that regardless of a important slippage on the fiscal deficit—pegged at 9.5% of GDP for FY21—she did not introduce any new taxes or boost any tax prices. At the exact same time, there was no space to give relief to taxpayers by minimizing taxes or providing them any incentives. Accordingly, the finance minister chose to concentrate on the themes of minimizing tax compliances, advertising ease of carrying out company and enhancing taxpayer services. The Budget proposals contain the facility of supplying taxpayers with prefilled earnings tax returns with information of capital gains, dividend and interest earnings, scrapping of earnings tax return filings for senior citizens above the age of 75 years, obtaining a pension and interest earnings only. Further, the time limit for reopening of assessments is proposed to be decreased from six to 3 years from the finish of the relevant AY, except for specific instances which can be reopened up to 10 years. Apart from the above, acknowledging the decreased efforts expected in a digital era, the timelines for filing belated returns, revised returns and completion of assessments have been decreased.
There are some welcome proposals on the dividend taxation front. These contain waiving off withholding tax on dividend payments to REIT and InvIT, granting advantage of tax treaty prices for the dividend paid to FPIs and aligning advance tax liability on dividend earnings with its declaration or payment thereof.
Start-ups have been fueling India’s development story. In order to incentivise them, the 3-year tax vacation offered to them is proposed to be extended to commence-ups that are set up by March 31, 2022. Further, the tax vacation on reasonably priced housing projects (like reasonably priced rental housing projects) is proposed to be extended by one more year, till March 31, 2022. This would help in realisation of the government’s purpose of “Housing for All”.
There is a slew of proposals vis-a-vis tax dispute resolution. Having produced assessments, appeals and penalty proceedings faceless, the Budget now proposes to even make Tribunal appeals faceless. Further, in order to make sure more rapidly disposal of instances, the Authority for Advance Rulings is proposed to be replaced by a Board for Advance Rulings (BAR). The BAR shall consist of two members, not beneath the rank of chief commissioner. Orders of the BAR shall not be binding and shall be straight appealable to the High Court. To allow taxpayers to get fair and impartial rulings, it would have been advisable to provide for the members of BAR to be independent tax professionals or retired Tribunal members, devoid of which the BAR may well just turn out to be a forum for quickly-tracking instances to the High Court.
It is mentioned that the devil lies in the information. There are some proposals that did not uncover a mention in the Budget speech but are most likely to have far-reaching ramifications for taxpayers. One of them pertains to depreciation on goodwill. Overturning a favourable Supreme Court selection, it has now been clarified that goodwill will no longer be treated as a tax depreciable asset, irrespective of no matter whether it arises on an amalgamation or demerger or company acquisition. Further, to augment revenues and hold a verify on tax evasion, it is proposed to introduce TDS on acquire of goods @ .1% in case payment by a resident purchaser (whose turnover in the preceding FY exceeds Rs 10 crore) to resident seller exceeds Rs 50 lakh in a economic year.
The finance minister has also produced some far-reaching modifications to the equalisation levy (EL) provisions. It is proposed to exclude payments in the nature of royalty or charges for technical service, from the scope of EL, thereby making sure that they endure tax @ 10% beneath the Income-Tax Act, as compared to the 2% tax beneath EL provisions. Further, the expression ‘online sale of goods’ and ‘online provision of services’ has been considerably widened. Apart from the above, it is clarified that the term ‘consideration’ will contain the worth of goods or services, regardless of their ownership or the reality that the e-commerce operator is merely a facilitator of the transaction. One helpful modify relates to the earnings-tax exemption for receipts liable to EL. This provision was initially produced applicable from FY22, but it is now proposed to make it applicable from FY21 itself, thereby removing the anomaly in the law.
All in all, although it is a mixed bag of proposals from a tax point of view, directionally, it appears to be a superior Budget aimed at pump-priming the economy, ramping up government expenditure for stimulating development, and bringing the economy back to pre-Covid levels.
(With inputs from Ravish Kotadia, CA)
The author is Partner and head, Corporate and International Tax, KPMG, India