1. Reduction in rate of Minimum Alternate Tax (MAT) :
Section 115JB of the Act requires every company to pay 15% of MAT where the normal tax liability of such company is less than 15% of the book profit.
A company opting for special rate taxation under section 115BAA and 115BAB of the Act are exempt from paying MAT. Further, a company, being a unit of an International Financial Services Centre (IFSC) and deriving its income solely in convertible foreign exchange, will be required to pay MAT at 9% (plus cess and surcharge as applicable).
In this regard, it is suggested that the rate of MAT reduced to 9% for start-ups as well. This will help the start-ups under loss, in meeting the liquidity crunch due to additional MAT liability.
2. Increase the emolument threshold of section 80JJAA to INR 50000:
Section 80JJAA of the Act provides deduction of 30% of additional employee cost incurred on additional employees employed during the previous year. The definition of “additional employee” amongst other include condition that the monthly emolument of such employee shall not exceed INR 25000. The threshold was prescribed vide the Finance Act, 2016.
The deduction is quite helpful for start-ups as it helps them in mitigating their tax liability. However, in view of the increase in inflation, the threshold is quite low and requires reconsideration. Therefore, it is suggested that the said threshold limit should be increased.
3. Provisions of section 68:
The provisions relating to tax treatment of cash credit are given in section 68. As per section 68, any sum found credited in the books of a taxpayer, for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year. The scope of this section was inter alia extended by Finance Act, 2022 whereby closely held company, have been required to explain the nature and source of any sum, whether in form of loan or borrowing, or any other liability credited in the books of an assessee.
Therefore, it is expected from the Budget 2023 to withdraw the aforesaid amendment. Alternatively, it is suggested to rationalise it by prescribing a threshold to keep small loan or borrowing, or any other liability out of the ambit of section 68.
SHARMA ROHIT & CO (CHARTERED ACCOUNTANTS)
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