The Budget 2024 has sparked significant debate, not only for its fiscal allocations but also for the critical issues it has overlooked. While the budget aimed at economic stability and growth, several key areas, particularly concerning taxation and administrative procedures, have been neglected. This article delves into the issues of tax rectification, rates, TCS on foreign travel, and the need for reforms in presumptive taxation.
1. ISSUES IN RECTIFICATION OF THE ORDERS PASSED:
1.1 As per the present Act the Assessing Officer/CPC/NFAC can take four years to dispose of the rectification petition. It is not just and equitable to direct the assessee to respond within 30 days (1 month) for payment of the disputed demand and the department will take 4 years (48 months) to rectify or reject the petition. To be fair and equitable, the Income Tax Act should be amended in such a way that the Assessing Officer/CPC/NFAC will also be given time of 30 days only for rectification and if the rectification order is not passed rejecting the petition within the time allowed, the petition made should be deemed to have been allowed and once the rectification petition is filed the assessee should automatically be given time till the disposal of the petition to pay tax as well as to prefer an appeal. Many assesses are suffering because even clerical errors are not rectified, and they are compelled to pay a minimum of 20% of the demand and go for appeal. As of now once the rectification petition is filed the system simply process the return once again and passes the order already passed without any change, because it seems that nobody reads the rectification petition and the system automatically reprocess the Return already filed and passes the order. It is done mechanically without any human intervention, which is not correct.
1.2 As of now, there is no provision in the Act to apply for rectification if there are mistakes in the orders passed u s 250 by the CIT (Appeals). Hence a suitable provision should have been made in the Act to apply for rectification for correcting the mistakes apparent on the order.
2. RATES OF TAX, BASIC EXEMPTION AND REBATTE:
2.1 As of now the rates of taxes arise from a lower limit of Rs. 2.5 lakhs and the entire tax payable up to the income of Rs. 5 lakhs are allowable as a rebate for which there is no logical reasoning. Instead, the basic limit itself should be raised to Rs. 5 Lakhs for all assessees who are below 60 years of age and for assessees above 60 years and below 80 years of age the basic limit can be increased to Rs. 8 Lakhs and for super senior citizens, who are 80 years and above the basic limit can be fixed as Rs. 10 Lakhs.
2.2 This TCS @20% on foreign travel expenses is exorbitant and it seems there is no logical reason for this increase. Why do the law makers fail to understand that TCS is not like TDS, which is nothing but collection tax in advance from the recipient who earns an income above a certain limit whereas TCS is for collecting a fraction of the expenses mainly for bringing such transactions to the knowledge of the I T Department so as to ascertain whether the particular assessee has sufficient sources of income or taxed money in hand to incur such an expenditure or make an investment is not known. Of late in recent years the TCS rates are increased without understanding the purpose for which TCS was introduced. This increase will primarily burden the foreign travelers which should be withdrawn and the maximum TCS rate should be maintained at 1% only.
2.3 The Income Tax Department was boasting itself by making announcements in Newspaper that they are going to refund Rs. 3.5 trillion during the financial year 2023-24. But this is not a news to rejoice in because it means that there are more TDS than required. If by AI or by any other method they can find out and reduce or remove the TDS in unwanted areas, it will save a lot of money for the assesses and a lot of time for the Department.
By promoting the New Tax Regime (NTR) the Government discourages the savings habit of the assessees, which is not a healthy sign for a growing economy. Suddenly, the assessees cannot switch over to NTR from the Old Tax Regime (OTR) because they would have long standing commitments such as payment premium for Life Insurance/Mediclaim Policies, Repayment of Housing Loans etc. The assessees have made such long-standing commitments since tax relief was given to them for such payments. The NTR should be scrapped and if not, OTR should be given marginal relief which is available for followers of NTR only. Likewise, while the limit for claiming marginal relief or NTR is Rs. 7 Lakhs, the limit for OTR is kept at Rs. 5 lakhs only. It should also be increased to Rs. 7 lakhs for OTR also. If the government is bent upon having both the regimes the benefits made available in the Budget such as ‘higher standard deduction from Rs. 50,000 to Rs. 75,000’, Increase in Standard Deduction from Rs. 15,000 to Rs. 25,000 for Family Pension and Increase in the Deduction under section 80CCD from 10% to 14%, available for NTR should be given to the for the OTR also.
3. PRESUMPTIVE TAXATION NEEDS FINE TUNING
3.1 Applicability of sections 44AD, 44ADA & 44AE: As of now there is no clarity. Each section has got its own definition of the assessees to whom it is applicable. All the sections should be made applicable to all resident assesses excluding the assessees whose accounts are necessarily to be audited under any other Act.
3.2 Under Section 44AD income is arrived @ 8% of the turnover and the rate is lowered to 6% for receipts other than cash. But such a concession is not made available u.s. 44ADA and 44AE. For section 44ADA the income is calculated @ 50% of the gross receipts, wherein to promote non-cash transactions in this category also for receipts other than cash, 40% may be taken as income. Likewise u.s 44AE Rs. 1,000/- p.m. per ton for Heavy Goods Vehicle and Rs. 7,500/- for other vehicles are estimated as income. Here also concessions may be given for promoting non-cash transactions by allowing deduction of 5% of the receipts in mode other than cash.
3.3 Under section 44AD the turnover is taken into account, which is nothing but net sales (i.e. sales less returns, if any), whereas under section 44ADA the rate of income is arrived from the Gross Receipts, which may include reimbursement of expenses also, wherein calculation of income @ 50% on the receipt of reimbursement of expenses in not correct. Hence such receipts should be allowed to be deducted from the gross receipts for arriving at the calculation of 50%.
3.4 Section 44AD (4) reads as under:
Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
From the above clause it is clear that the assessee cannot opt for ‘Presumptive Tax’ for six years (including the year in which he has come out of the scheme), if he has not offered income under this scheme for consecutively for six years including the first year in which he has opted for the scheme. Does it mean that if he has opted for the scheme for six years consecutively, afterwards he is free to opt for the scheme, whenever he likes?
If the intention of the statute is to deny the benefit to those who opts out of the scheme, it is sufficient to mention that once if he fails to opt for the benefit of this section in any year (instead five years) subsequent to the year he has availed the benefit he cannot claim the same for next five years, i.e., he cannot return for five years.
Hence the clause 4 is to be replaced as:
Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any year relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
3.5 In the case of Partnership Firms, Partners’ Interest and Salary are specifically not allowed as deduction under section 44AD whereas the section 44ADA is silent about the same. While books of accounts are maintained and audited, before arriving at the taxable income, interest @ 12% p.a. on the amounts invested in the Partnership Firm either in Capital Account or in Current Account of the Partners and salary up to the limits provided u.s 40b are allowed as deduction before arriving at the Taxable Income. It will be fair and just to allow interest and salary to partners so that those Partnership Firms which opt for presumptive tax are also treated on par with others who get their accounts audited. Further in the present situation if a partner gets interest and salary from a Partnership Firm, which has offered income under presumptive taxation scheme, whether such interest and salary are exempt from Income Tax in the hands of the partners is not specified in the Act though they are not allowed as expenditure in Firm’s hands. Since all the expenditure is deemed to have been allowed in Firm’s hands the interest and salary would be subject to tax in partners’ hands also, which will lead to double taxation. In the normal course in the case Firms, which are subject to audit and offer less income than the rates prescribed under this scheme, such interest and salary (which are allowed as deduction) are not taxable in the hands of the partners as Income from Business/Profession, Hence it suggested that the assessees who offer income under this scheme are to be allowed to deduct interest and salary to partners up to the existing limits from the income offered at the prescribed rates so that they are also treated on par with those who offer less income with audited accounts. As of now the salary to partners is allowed to be deducted from the percentage of profit arrived under presumptive basis u.s 44AE only.
4. ASSESSMENT PROCEDURES:
4.1 While re-opening cases u.s 148, the reasons for opening the case should be mentioned in the notice itself, because many such re-openings were structed down at appellate stages because there is no valid reason at all for re-opening. Because of this so many man hours are wasted in ascertaining the reasons from the department and then contesting the same about the reasons spelt out or valid or not by appeals and writs.
4.2 As of now if discrepancies are found in Form No. 26AS such as ‘receipt of maturity amount of the Policy and the TDS’ are found in the Policy whereas the assessee in whose Form No. 26AS it appears has not received any such amount during the year or Interest and if the return is filed without taking into account such information, the assessee will be getting notice from CPC for the differences in Form No. 26AS enhancing the income and demanding additional tax. Filing rectification or appeal for such issues is time consuming. Hence it is suggested that in such instances the assessee should be given an opportunity to apply for rectification with the concerned entity which had uploaded the wrong information with an option to inform the CPC also about the discrepancies. For this purpose, a separate window may be provided on the site for the assessees to make representations so that automatic alerts may be sent to the concerned authorities who had uploaded incorrect information.
4.3 Presently the NFAC gives 24 hours’ time with intermittent holidays for submitting the required particulars, which is too short. It is suggested that time of at least 15 days is given for responding to notices. From the notices received from NFAC, it is understood that back files are not given to the Assessment Team either in physical mode or in electronic mode and hence they raise primitive questions on the nature of business, maintenance of accounts, investments in foreign country etc. The very same questions are asked to the assessee regarding nature of business, source of income etc., every year. It can be avoided if they are supplied with basic records of the assessee so that the time spent on collecting basic information can be avoided. Moreover, the questions raised are in the form of taking an interview of a candidate who is seeking employment or applying for loan. Irrelevant questions are raised by NFAC; for example, ‘Details of Insurance Commission earned/paid during the year’ is asked for. How can an individual give insurance commission? Likewise details of godown and warehouses owned are asked for an individual who runs cars on hire.
4.4 NFAC uses the sections 68 & 69 indiscriminately and taxes are levied u.s 115 BBE @ 60% with interest, wherein the tax and interest exceed the income assessed especially in old cases, which are opened u.s 148. In addition, penalty proceedings are initiated and if penalties are levied the taxes and penalties are many times more than the assessed income, which is unfair. These sections are brought into the statute for the main purpose of assessing the cash deposits of SBNs made during the demonetisation period. Since they are widely used to harass the assessees as seen by the orders of appellate authorities and writs of High Courts, it is high time sections 68, 69 & 115BBE are scrapped.
5. CHANGES REQUIRED IN THE E – PROCEEDINGS:
5.1 While paying ‘Appeal Fees’ under e-tax in the Income Tax site, after selecting ‘Appeal Fees’ the system displays ‘income-tax’, sur-charge’ ‘cess’ etc. This should be removed. There is no option to pay the late fees payable u.s. 234F. While paying Advance Tax the site should display only the current financial year; but it displays past years for which Advance Tax cannot be paid.
5.2 Only 4000 characters are allowed for filing response during assessment/appeal proceedings and that too a small box is provided for typing the arguments and for furnishing particulars. In addition, since the same is done in online mode while typing the response for a longer time, often ‘continue session’ pops in which hinders the flow of providing too many data. It would be better to allow the assesses upload the response in PDF format separately typed instead of typing in the small box.
5.3 For filing responses for queries raised by the CPC about the mis matches in TDS, wrong claims etc., only 500 characters are allowed. This should be increased to at least 1000 characters. As of now there is no provision to attach documents. Attaching few documents in pdf format should be allowed in order to explain fully the issues involved.
5.4 As of now while filing an appeal, the assessment order against which the appeal is preferred is to be uploaded by the assessee, which should be avoided. It should be made sufficient to mention the order number and date so that the appellate authorities can view the same in the system itself.
5.5 As of now hearing notices are sent by mail to the assessee’s mail id as well as alternate mail id. But there are some cases where the assessees deny having received the hearing notices sent to both email ids. There is no mechanism to prove the mail sent or received by the Department. Likewise there is no record to prove the replies sent by the assessee via mail. It is requested to devise a full proof system for the mails sent by the Department with date stamp for having sent and for the mails received by the department with date stamp for having received the mail from the assessees.
5.6 While responding for notices for ‘Pending actions’ under ‘e-proceedings’ the latest notice for which the assessee has to respond should come in the top. As of now all the notices for which responses have been filed for all the years appear, which makes the responding forum clumsy. They should be arranged ‘Assessment Year war’ and chronologically listed.
6. FRIVOLOUS ASSESSMENT ORDERS VIS-A-VIS FAIR TREATMENT OF ASSESSES:
6.1 If an assessment order is passed by an Assessing Officer demanding a huge amount and if the assessee was able to succeed in proving in appeals the wrong assessment made by the assessing officer and get the demand deleted, he should be compensated for the mental agony undergone by him in running from pillar to post in either paying the tax fully or partially and for applying for stay of collection of taxes and the loss sustained by him in paying the demand and in incurring expenses for filing appeal and for representation at higher levels. The compensation should be equal to the demand made at least.
6.2 There are lots of cases pending before Appellate Authorities viz. NFAC (National Faceless Appeal Centre) and ITAT (Income Tax Appellate Tribunal). It is high time that a time limit is fixed for disposal of appeals by both of them. Time limit should be fixed for taking up the case for hearing in appellate stage; say they should be taken up for hearing within at least six months from the date of filing an appeal. Once the case is taken up for hearing another time limit should be made mandatory, say three or six months from the date of first hearing, the appellate order should be passed unless the delay is attributable to the assessee. This will reduce the pending cases and finality will be reached faster.
7. WIDENING THE TAX BASE:
7.1 Many Individuals/registered societies/Trusts etc., obtain PAN and never files Return of Income even if they have taxable income. Notices should be sent to them to file ROI.
7.2 Another area is submission of Form 61/61A by people at various situations where PAN is required or otherwise, they can give these forms. Though either Form 61 or Form 61A is to be obtained many get both the forms without filling the same and it is not known whether any authority is monitoring about the obtention and submission of the same with the Income Tax Department and further action taken on the forms so submitted. If more time is spent on this issue more assessees can be roped in. All the Form 60/61 given at various locations by a person should be clubbed with the help of ‘id proof’ or ‘Address Proof’ or ‘Aadhar Card’.
Conclusion: The Budget 2024, while aiming for fiscal prudence, has overlooked several critical issues that affect taxpayers directly. Rectification procedures, tax rates, TCS policies, and the structure of presumptive taxation require immediate attention and reform. Addressing these issues will not only make the tax system more equitable but also enhance compliance and taxpayer satisfaction. It is imperative for policymakers to consider these concerns and implement necessary changes to ensure a fair and efficient tax regime.
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Exhaustive Coverage; Whether these points will be covered in the next budget at least?