Pre Budget Recommendations of Income Tax for Union Budget, 2020

As we all are aware that The Union Budget for 2020-21 will be presented in the Lok Sabha on 1st February, 2020) at 11.00 am by our Finance Minister Nirmala Sitharman. As per every year, this year also Institute of Chartered Accountants of India has submitted its Pre Budget Memorandum to the government. Today we are covering some important key pre budget recommendation which are submitted by ICAI. Also we are covering some pre budget suggestions given by top faculties of various sectors such as Travel, Auto, Ecommerce, Fintech & Startup.

Intention of these suggestions are as under:

1. Improve tax collection

2. Reduce or minimize litigations

3. Rationalisation of provisions of direct tax laws

4. Removal of administrative and procedural difficulties relating to Direct Taxes

5. Check Tax Avoidance

Some important key pre budget recommendations given by ICAI are as under:

1. Reduction in holding period in case of immovable property:

It is suggested that consequential amendments may be made in sections 54, 54B, 54D & 54F so as to enable the holding period of the new asset purchased to be reduced to 2 years from 3 years in case of land and/or building

2. Extending the scope of incomes which do not form part of total income:

a) Section 10(12A):-

It is suggested that the amendment as made in section 10(12A) i.e an exemption of upto 40% of the total amount payable to an employee may also be made in section 10(12B)  thereby extending the benefit of exemption in case of partial withdrawal to non- employee subscribers as well.

b) Section 10(23C):-

It is suggested to exclude “Corpus Donation” from the requirement of mandatory application of income by such trusts / institutions just like section 11(1) read with section sec 12 and thus will not compel the Institutions coming within the scope of section 10(23C) to apply even their corpus donations to the day to-day activities for getting the exemption

c) Section 10(32):-

At present income of minors included in the hands of parents is exempt to the extent of Rs.1, 500/- for each minor. It is suggested that this should be raised to at least Rs. 5,000/- for each minor child.

3. Suggestions related to Income from Business and Profession

a) Section 37 – Corporate Social Responsibility Expenditure

These expenses are all connected to social and charitable causes and not for any personal benefit or gain. It is,  therefore, fair to allow the same as business expenditure. There is no bar on allowability of CSR expenditure falling under other sections like 35, 35AC etc. There is a strong need to revisit this provision  and the companies should be allowed 100 per cent deduction of CSR. In fact, ideally there should be no bar on allowability of CSR expenditure under the Act.

b) Section 40(b)(v) – Raise in allowable expenses in the form of remuneration to working partner

It is suggested that limit for allowable remuneration for each of the working partner be changed at the rate of Rs.  1,80,000 per annum per partner or 90 percent of book profits whichever is more for first Rs.10,00,000 of book profits and 75 percent of the remaining book profits.

c) Section 44AD – Presumptive Income Some Issues

It is suggested that instead of sub-section 44AD(6), the definition of “eligible business” be amended to exclude ‘specified professionals’, agency business and business in respect of which the earnings are in the form of commission or brokerage.

d) Section 44AD – Benefit of presumptive taxation to LLP

The benefit of section 44AD should also be made available to LLP.

e) Section 44ADA – Special provision for computing profits and gains of profession on presumptive basis

It is suggested that the threshold limit of Rs 50 lakh may be raised appropriately (say to at least Rs 1 crore) so that a sizable percentage of professionals in the small and medium segment are covered under the said provisions.

It is suggested that the estimated rate of income @ 50% of the total gross receipts May be reduced appropriately (say to 30%) considering the high cost of providing the Services by specified professionals specially the small tax payers having income from profession.

4. Suggestions related to Capital Gains:

a) Section 54EC:

Time limit for investment in specified bonds is presently 6 months from the date of transfer. It is suggested to amend section 54EC so that time limit for investment in specified bonds may be allowed up to the due date of filing of ITR. Further, considering the inflationary conditions in the economy, it is further suggested that the said limit of Rs.50 Lakhs may be raised to Rs. 1 crore.

b) Section 55(2)(ac) – Clarification required to determine the cost of acquisition in case of merger/Demerger etc

We all know one of the major amendments by FA 2018 in Capital Gain Chapter i.e. 55(2)(ac) Grandfathering of Cost). It is suggested to bring clarity in determining the cost of acquisition in case of merger/demerger etc u/s 55(2)(ac) by amending the said section or by issue of a clarification.

5. Suggestions related to set off and Carry forward:

Section 71(3A) – Loss from House Property –

It is therefore suggested to withdraw the said amendment. Alternatively, the limit of Rs 2 lakhs may be raised to atleast Rs 5 lakhs

6. Suggestions related to Deductions:

a) The annual limit for contribution to PPF be increased to Rs. 3 lakhs from the present ceiling of Rs. 1.5 lakhs.

b) The limit for deduction under section 80C to be increased to Rs. 2.5 lakhs from present Rs. 1.5 lakhs

c) The limit for deduction under section 80DDB for expenses incurred on treatment of certain chronic diseases may be increased

d) Amendments required in Section 80EEA (Tax Incentive for Affordable Housing) It is suggested that section 80EEA (1) may be amended as follows (by inserting the words ‘or construction’ akin to provisions of section 54 and 54F). It is suggested that limit of Rs 45 lakh as the value of residential house property may be raised appropriately.

e) Section 80TTA was inserted by the Finance Act, 2012 to provide deduction of up to Rs.10,000 in the hands of individuals and HUFs in respect of interest on savings account with banks, post offices and cooperative societies carrying on business of banking. Interest on all types of deposits (eg FDRs) may also be included within the scope of section 80TTA.

f) The Finance Act 2018 inserted a new section 80TTB so as to allow a deduction upto Rs 50,000/- in respect of interest income on deposits made by senior citizens. It is suggested that income by way of interest on National Savings Certificate also be included within the ambit of provisions of section 80TTB, so that senior citizens who have purchased NSCs from post offices are also able to avail the benefit of enhanced deduction under section 80TTB.

Expectation of Trade and Business from Budget 2020-21

1. Travel Sector:

“We are also hopeful that the government will take cognizance and resolve challenges for the aviation industry which has already seen a tough year in 2019. For one, out of all the stakeholders in the aviation ecosystem, airlines operate with the most paper-thin margins. This, coupled with TCS (Tax collection at source), ends up hampering the working capital of airlines, giving rise to numerous operational difficulties. These obstacles are not only affecting the stakeholders and service providers but the consumers as well. We are optimistic that the government will continue to be open-minded and maintain the impetus of its past initiatives while bringing necessary reformations to further enable the travel sector” – – Indroneel Dutt, CFO, Cleartrip (Travel)

“The government has recognized the potential of cruising as an economic multiplier and is catching up with the world in terms of policies and infrastructure. Cruise Lines are now looking at the government to create a relatable tax regime, which is at par with the rest of the world”- Varun Chadha, CEO, Tirun (Travel)

2. Automation Sector:

“I believe that the government should build on its recent push towards sustainability by prioritising the growth of the EV ecosystem. This can be done by promoting the creation of a strong and well-connected charging infrastructure on a pan-India level, promoting the setting up of EV battery capacity in the country and incentivising the adoption of EVs, especially for public transport buses, fleet operator cars and 2 and 3 wheelers. The road connectivity must also be improved between major urban centres and tier-2/3 regions to bolster the growth of the travel and tourism sector”-  Sunil Gupta, MD & CEO, Avis India (Auto)

3. E-commerce and Startup Sector:

“The expectation from the budget is to help the economy recover in most sectors that have seen a smaller growth over the last few years. Apart from this, we hope india lowers it’s import tax on commodities so that end consumers can have access to aspirational products for cheap prices, while at the same time drive credit subsidies for small business owners and boost manufacturing, which eventually will strengthen the economy growth” – Jasmeet Thind, Co-founder, Coutloot (Ecommerce & Startup)

4. Fintech & Startup Sector:

“Fund availability has to be made for a conducive and supportive financial environment. This is because the lending fintechs are largely the ones that cater to the masses or the people who are not served by the formal financial institutions. The access to liquidity has to be eased for such fintechs. Though there are many funds which are established for the fintechs, the flow of money for the same has its own unique challenges.There has to be rationalization of MAT tax rate along with the increase in the minimum threshold for tax exemption as many end up paying taxes despite being eligible for the tax holiday.”

Suggestion given by – Manish Khera, Founder & CEO, HAPPY (Fintech & Startup)

5. Life Insurance Sector:

a)    Suggestions given by – Mr. S N Bhattacharya, Secretary, Life Insurance Council

Suggestion 1– “For a pension plan issued by life insurance companies, an individual contribution to the pension fund is deductible under section 80CCC under the overall limit of section 80CCE of INR 150,000. The Finance Act 2015 inserted a new sub-section (1B) under Section 80CCD of the Income Tax Act to encourage investment in NPS by any individual by allowing an additional deduction of INR 50,000 over and above the INR 1.5 lakhs available under Section 80CCE of the Act. It is recommended that in order to reduce gap between taxation of pension policies issued by Life Insurance Companies vis-à-vis NPS of the CG, the additional deduction of INR 50,000 for premium paid (as available for NPS) should be extended to pension policies issued by Life Insurance Companies.”

Suggestion 2 – “Life insurance meets the twin needs of providing protection as well as long-term savings with the goal of meeting living needs. It is particularly needed in the absence of the Government’s social security scheme that is present in many global economies. We request that Honorable Finance Minister Ms. Nirmala Sitharaman consider a separate deduction to be provided for premium paid on individual life policies. If no separate deduction is provided, the existing limit of INR 1,50,000 (i.e. section 80C) should be enhanced from INR 1,50,000 to INR 3,00,000, since the existing limit of INR 1,50,000 is too crowded with both short-term and long-term investment vying for its share.”

b)    Suggestion given by – Mr. Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance

“In the upcoming budget, we expect the government to focus on bringing more people under the ambit of Life Insurance, promote long-term savings and encourage capital formation. In a country with inadequate social security, protection offered by life insurance is inevitable; however, lack of its penetration is plaguing the industry.  Introducing separate deduction of Rs 50,000 for first time life insurance buyers and an additional capping of Rs 50,000 for someone purchasing a pure protection (term) plan will put life insurance on fast track. Another important move would be to encourage women to insure their lives and savings. Extra tax benefit for women policyholders will be a significant step. Moreover, relaxation of section 10(10)(D), where minimum sum assured is required to be 10 times of annual premium will be a desirable move. The budget should also bring about measures to bring parity between pension products offered by life insurers and NPS. Lowering rate of GST at 12% (with input tax credit benefit) will be beneficial for both policyholders and companies. These measures will pave the growth path for the LI sector, besides increasing the security net of the nation’s people at a very low cost”

c)    Suggestion given by – Mr. Tarun Chugh, MD & CEO, Bajaj Allianz Life

 “Collectively as an industry, we do see a lack of parity in the tax treatment of pension products of life insurance companies and pension products under National Pension Scheme (NPS). Both the products have similar objective of building long term savings for meeting retirement goals, hence, this disparity should be addressed by the government in the Union Budget 2020. Further, in order to enable customers to see life insurance beyond a tax saving tool and invest in it to fulfil their long term financials goals, the government should either consider a separate deduction section or enhance to limit under Section 80C of Income Tax Act, 1961, to INR 3,00,000, since the current limit of INR 1,50,000 is too low to cater to all the contributions it covers.”

Complied by Taxguru Team