In opposition to the backdrop of a COVID-19 triggered contraction, the Union Finance Minister on Monday offered the Union Finances 2021 with a give attention to six pillars to turbo cost the economic system and usher in radical reforms like privatisation of banks / insurance coverage, growing FDI restrict in insurance coverage sector, monetising upcoming Devoted Freight Hall by Railways, and so on.
On the tax entrance, speculations had been rife that some new tax like COVID cess shall be launched or surcharge on earnings tax shall be elevated. However the authorities didn’t suggest any new tax or any enhance in current tax charges. The federal government maintained a established order, which indicators a stability in tax regime in these turbulent occasions – and, is a welcome transfer.
The federal government introduced a number of measures for the good thing about particular person and small / medium taxpayers and to ease their compliance burden. As an illustration, senior residents (75 years or above) incomes pension and curiosity earnings have been exempted from submitting tax return. Taxpayers will now be supplied with pre-filled tax returns which can even embody particulars of capital good points from listed securities, dividend earnings, and curiosity from banks, submit workplace, and so on.
The federal government additionally plugged the loophole and hit laborious on the 2 broadly used tax-free choices most well-liked by high-income earners. Firstly, the taxation of ULIPs has been rationalised and the Finances proposes to permit tax exemption for maturity proceeds of ULIPs with annual premium as much as INR 2.50 lacs solely. Secondly, tax exemption for curiosity earnings earned on worker’s contribution to varied provident funds to an annual contribution is restricted to INR 2.50 lacs solely.
All this has been made potential resulting from in depth funding made by the federal government in expertise and course of automation in the previous few years, equivalent to e-filing of tax and different returns, annual info studies, specified transaction studies, faceless evaluation, enchantment, and so on.
With this huge technological improve, tax assessments have gotten extra environment friendly, faceless and jurisdiction-less. Thus, to carry certainty in earnings tax proceedings on the earliest – the federal government has proposed to curtail the time interval spent in processing of tax returns, finishing evaluation, and so on. by 3 months. Additionally, with the latest success of faceless evaluation / enchantment, the federal government even proposes to make tax tribunals faceless, jurisdiction-less and extra environment friendly – although, there could possibly be some hiccups.
This technological development is bearing fruits for taxpayers as effectively. As the federal government is having a reservoir of knowledge at its disposal, collected from taxpayers / third events – it has proposed to cut back the time restrict for re-opening of evaluation from 6 years to three years, topic to sure circumstances. It is a welcome transfer and implies that taxpayers gained’t have the sword of re-assessment hanging over their neck for a protracted interval.
One other focus space which was clearly seen within the Union Finances was that on dispute decision. The federal government introduced a big step to type a Dispute Decision Committee for small and medium taxpayers having earnings as much as INR 50 lacs and tax adjustment as much as INR 10 lacs. This shall go a great distance and assist forestall new tax disputes and settle points on the preliminary stage itself. In occasions to come back, the federal government might imagine to develop the ambit of the Committee to cowl giant taxpayers as effectively.
As regards giant corporates, the federal government proposes to put off the Authority for Advance Rulings and substitute it with Board for Advance Rulings (BFAR) as a substitute technique of offering advance rulings to taxpayers in a well timed method. Since, BFAR shall be headed by Income officers, in occasions to come back, it could be utilized by taxpayers as a quicker route to succeed in Excessive Court docket.
The federal government additionally stood agency on its dedication to BEPS venture and continued with Equalization Levy (EQL), regardless of investigations by its largest buying and selling companion i.e., USA. The federal government went on to make clear vary of elements associated to EQL relevant on non-residents on the price of two%. Firstly, with the intention to present certainty, it’s being expressly clarified that transactions within the nature of royalty or charges for technical providers taxable beneath the income-tax regulation (learn with relevant double taxation treaty), wouldn’t be answerable for EQL. Secondly, it’s also proposed to make clear on what would construe an ‘on-line sale of products or providers’. It has now been explicitly expanded to virtually all transactions having some factor of digital nature. Thus, non-resident taxpayers ought to fastidiously analyse intra-group / third-party transactions.
As regards company tax, the federal government has put to relaxation a long-standing tax difficulty and clarified that no tax depreciation on goodwill shall be allowed – which could possibly be dampener for restructuring workout routines. Additionally, with the intention to shield the curiosity of workers and guarantee well timed deposit of workers’ contribution to PF, ESI, and so on. by employers, it’s proposed that the late deposit of workers’ contribution by the employer shall not be allowed as deduction to the employer.
The tax and non-tax measures introduced by the federal government and with expertise at their facet – will go a great distance and show to be a stepping stone to make India an Atmanirbhar Bharat and realise the dream of constructing a US$ 5 trillion economic system.
Neeru Ahuja is Associate with Deloitte India