The Budget 2024 introduced several significant amendments that have sparked widespread debate among taxpayers and financial experts. Two amendments that stand out are the removal of indexation for long-term capital gains and the introduction of TDS on the salary and interest of partners in partnership firms. This article critically analyzes these amendments, exploring their implications and the rationale behind them.
1. REMOVAL OF INDEXATION:
The removal of indexation is very unfair, and the reasoning given by the FM being the reduction of the rate of tax from 20% to 12.5% sans logic because the indexation takes care of the inflation automatically and taxing the gain earned during a period of time at a reasonable rate is the prerogative of the exchequer. The Government can increase or decrease the rate of tax according to the prevailing average rate of tax considering all the income earned during the year. The law makers should not forget the reasoning given by the Government for bringing in the indexation and in fact while it was introduced in **** it was welcomed by one and all. The History of Indexation is given below separately from which one can understand with how much fanfare it was brought in.
2. TDS ON SALARY AND INTEREST OF PARTNERS IN THE CASE OF PARTNERSHIP FIRMS:
TDS provisions under section 194T for the interest and salary of the partners in the case of Partnership Firms have been introduced without considering the repercussions. This will increase the burden of compliance on the part of the assessees and simultaneously increase the burden of the Income Tax Department also in monitoring the same. Many firms do not have TAN and now they must obtain TAN, deduct tax, pay before the due date and file Quarterly TDS Returns. Already the Firms are subject to tax @30% without any basic exemption limit after allowing interest @ 12% on their outstanding credit balances and the salary up to the limits prescribed by the Income Tax Act. Normally in many firms the salary is decided at the end of the year only because the allowable salary depends on the profits earned throughout the year. If the profits are insufficient, they may forego their salary also to reduce their tax burden. But they may be drawing money throughout the year for their day-to-day expenses which may be out of their capital also. Since the proposed new section insists on deducting tax either at the time of credit or payment whichever is earlier, tax is to be deducted for every withdrawal and ultimately at the end of the year if the profits are insufficient the partners may forego the salary and in some cases interest also due insufficient profits or losses and they have to claim refund of entire TDS made throughout the year on their drawings. Above all already crores of rupees are being refunded every year because tax is either deducted in excess in many areas or it is being deducted where there is no assessable income at all. Again, this new TDS provision will add more such refunds and in addition this provision will reduce the liquid cash available with the Partnership Firms.
Conclusion: The amendments introduced in Budget 2024, particularly the removal of indexation for long-term capital gains and the new TDS provisions for partnership firms, have significant implications. The removal of indexation is seen as unfair and lacking in logical reasoning, given its role in accounting for inflation. Meanwhile, the TDS provisions on partners’ salaries and interest impose additional compliance burdens and cash flow challenges for partnership firms.
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