The upcoming Interim Budget 2024, scheduled for February 1, 2024, will be presented by the finance minister, Nirmala Sitharaman. Every sector of the economy holds specific expectations from this budget.

To simplify and streamline taxes, here are some important steps:

 

  1. Simplify withholding tax rules

For TDS/TCS on the purchase/sale of goods, it is suggested that sections 194Q and 206C(1H) be applicable only to individuals or businesses not registered with GST. This aligns with the government's aim to broaden the tax base. Alternatively, instead of TDS/TCS, buyers/sellers could be required to submit Annual Information Returns. Additionally, due to differences in the definition of 'goods' between the Sale of Goods Act and GST law, a precise definition of 'goods' should be established, excluding items like shares, securities, foreign currency, and actionable claims.

 

  1. Streamline Withholding Tax rates

To streamline withholding tax rates, the government could implement a roadmap aimed at reducing the variation in TDS rates. This could involve simplifying the categories of payments and creating a small list of payments exempt from TDS.

Here's a proposed breakdown of payment categories:

  1. Salary: TDS at standard slab rates
  2. Lottery and horse race winnings: TDS at a fixed rate of 30%
  3. All other payments: TDS at a uniform rate of 2%

Additionally, a "negative list" of payments not subject to TDS could be established, which might include:

  1. Payments to senior citizens
  2. Exempt income payments (e.g., payments to agriculturists, and residents of North-Eastern states)
  3. Purchases or payments to GST-registered entities already taxed under the GST
  4. Payments to registered charities
  5. Payments to entities covered by section 196 (Government, RBI, Statutory Corporations, and Mutual Funds).
  1. TDS / TCS certificate requirement

We propose a way to lessen the hassle of tax compliance. We suggest removing the need for TDS / TCS certificates in most cases. Exceptions would include issuing certificates for salary deductions (Form 16), payments to non-residents, and instances where the PAN (Permanent Account Number) is unavailable.

Tax Deduction at Source @ 1% under section 194O - Applicability on Farmers/ FPOs

We recommend excluding digital platforms benefiting farmers and Farmer Producer Organizations (FPOs) from certain tax deductions. This move would support agricultural activities without unnecessary financial burdens.

 

  1. Rectifying TDS Credit Discrepancies

The government's efforts to speed up tax refunds for taxpayers are commendable, as acknowledged by the Confederation of Indian Industry (CII). However, there's a problem that needs urgent attention: the mismatch between Form 26AS and ITBA records. To ensure smooth processing, it's essential to resolve this internal systemic issue promptly. Taxpayers shouldn't be denied TDS credit based on discrepancies between Form 26AS and ITBA. It's crucial for the authorities to address this issue without delay.

 

  1. Form 26AS To Include PAN and TDS Certificate Number And Breakdown of Sales Data Per Invoice

The Form 26AS, also known as the Annual Information Statement (AIS), will now include important details like the PAN of the deductor, Unique TDS Certificate Number, and a breakdown of sales data per invoice. This means that taxpayers can now easily track and verify their TDS credits against the information provided in Form 26AS, regardless of any timing differences between their recorded purchases or sales and the TDS/TCS credits in different financial years.

Additionally, Form 26AS/AIS will now show the PAN of the deductor and the unique certificate number, making it easier for companies to cross-check this information with their own accounting records. Moreover, when reporting TDS under section 194Q or TCS under section 206C(1H) in quarterly statements, there will be a breakdown of invoices with their respective dates. This detailed breakdown will be reflected in the taxpayer's Form 26AS/AIS, simplifying the process of reconciling it with their books of accounts.

 

  1. Personal Tax Provisions
  2. Simplified Procedure for TDS on Purchase or Renting of Immovable Property from Non-Residents

To enhance procedural simplicity when dealing with non-resident sellers or landlords, it is proposed to introduce a consolidated challan cum return form, similar to Form 26QB and Form 26QC, for withholding tax obligations. This would eliminate the need for resident individuals to obtain a separate TAN and ensure compliance with withholding tax requirements. Alternatively, the scope of Form 26QB and Form 26QC may be broadened to encompass the sale consideration or rental income paid to non-residents as well.

 

  1. Perquisite Tax Treatment for Electric Cars

It is recommended that suitable amendments be made to the Income Tax Rules, 1962 to provide clarity on the criteria for perquisite taxation of electric vehicles provided to employees by their employers.

 

  1. Rate Structure Standardization: Currently, there lack of consistency in tax rates and holding periods for different types of instruments within the same asset class. To address this, a uniform rate structure could be implemented based on the nature of the asset class, ensuring fairness and simplicity in taxation. The benefit of indexation, which adjusts the purchase price of an asset for inflation, varies across different situations. Streamlining the indexation benefit to be consistent across all scenarios would enhance clarity and equity in tax treatment.

 

  1. Buy-back Tax (BBT) Exemption

For listed shares undergoing buy-back through the open market via the stock exchange, an exemption from buy-back tax should be considered. This exemption would ensure that shareholders are not doubly taxed, as the transactions would already be subject to capital gains tax. Consequently, the exemption under section 12 10(34A) should not apply, maintaining consistency in tax treatment for such transactions.

 

  1. Simplify Compliances

To ease the burden of compliance, consider this recommendation: Section 68 should be adjusted to exempt genuine borrowings. Alternatively, the CBDT could be empowered to create a "white list" of legitimate cases, including:

  • Borrowings from banks, NBFCs, and financial institutions
  • Borrowings made by banks, NBFCs, and financial institutions themselves
  • Deposits, advances from customers, EMD, Security Deposits, etc., are accepted in the ordinary course of business from customers or vendors.

Similar measures have been taken in other provisions, such as gift taxation under section 56(2)(x) and the transfer of unlisted shares under section 50CA.

 

  1. Extension of Time Limit for Filing Revised Tax Returns

It is recommended that the deadline for submitting revised tax returns should be extended until the end of the assessment year. This extension will allow taxpayers to claim or modify foreign tax credits in accordance with the extended deadline provided for submitting Form 67 to claim such credit.

 

  1. Enhancing Interface with Central Processing Centre (CPC)

To better achieve the goals outlined in section 143(1) of the Act and CPC Scheme 2011, several measures are proposed for the consideration of CBDT:

  • Addressing Anomalies: Prompt attention should be given to resolving any discrepancies in the ITR utility and CPC return processing software.
  • Regional Interaction: DGIT (Systems) or relevant CPC offices should organize regional camps to engage with taxpayers and professional/industry chambers. This will help in understanding and addressing anomalies effectively.
  • Limiting Scope: The processing of income tax returns by CPC should strictly focus on determining tax liabilities or refunds due to taxpayers and rectifying obvious errors. CPC's jurisdiction should align with that of section 154, avoiding involvement in contentious matters.
  • Clarifying Adjustments: CPC should be instructed to clarify that adjustments related to expenditure disallowance or income increase, as indicated in audit reports, should only apply to clearly disallowable items or inadvertently overlooked incomes. No adjustments should be made contrary to favorable judicial precedents without proper consideration.
  • Transparency and Response Time: CPC should provide detailed information about proposed adjustments and allow sufficient time for taxpayers to respond. Responses should be reviewed by competent officers well-versed in technical and legal aspects.
  • Personal Appearance: Rule 12(i) should be amended to allow personal appearances via video conferencing, particularly to explain why proposed adjustments should not be made.
  • Timely Disposal of Rectified Applications: Applications for rectification or rectified returns filed electronically should be processed promptly to reduce the need for taxpayers to seek redress from appellate authorities unnecessarily. Clarity should be provided on the process of rectification without burdening taxpayers with multiple authorities.
  • Proper Assessment Process: Before using the total income from section 143(1) intimations as a basis for regular assessment, assessing officers (AOs) should follow the same procedures as those for making additions in regular assessments. Taxpayers should be given proper opportunities for hearings, including personal ones if requested.
  • Closure of Grievances: Before closing grievances raised on the CPGRAM portal, taxpayer consent should be obtained to confirm the resolution of the raised issue.
  1. Enhancing Alternate Dispute Resolution Methods

It's important to acknowledge the ongoing efforts of the Government to streamline tax payment procedures, which are widely appreciated by the industry. However, recent estimates from the Government reveal that as of 2021-22, there's a staggering INR 20.8 trillion locked in income-tax disputes. This represents approximately 8.9% of India’s nominal GDP for that year. Hence, there's a pressing need to reduce income-tax litigation by enhancing both alternative and traditional dispute resolution mechanisms. These include:

  1. Faceless Appeals
  2. Advance Pricing Agreement (APA) mechanism
  3. Board for Advance Ruling (BAR)
  4. Dispute Resolution Scheme (D).

Improving these mechanisms will help streamline the resolution process, ultimately benefiting both taxpayers and the government.