The Union Budget 2025 has overlooked several critical tax compliance issues, raising concerns among stakeholders. Firstly, the introduction of TDS on partners’ salary, interest, and drawings under section 194T creates excessive compliance burdens for firms, requiring TAN registrations and quarterly returns, while potentially reducing liquidity. Secondly, the indiscriminate use of sections 68 to 69F and high tax rates under section 115BBE necessitate their removal to curb taxpayer harassment. Thirdly, mandatory inclusion of reasons for reopening cases under section 148 is essential to enhance transparency. Fourthly, clarity on allowing partners’ salary and interest deductions under presumptive taxation regimes like 44AD and 44ADA is needed to prevent double taxation. Additionally, the Budget should establish a 30-day limit for disposing of rectification petitions, revisional orders, and appeals by authorities to reduce procedural delays and ensure equitable treatment of taxpayers. The lack of timely appellate decisions at NFAC, CIT (Appeals), and ITAT leads to prolonged case backlogs, necessitating fixed timeframes for hearings and order issuances. Marginal relief for taxpayers under the Old Tax Regime should be introduced to address inequities when transitioning to the New Tax Regime, especially for those with longstanding financial commitments. Lastly, grievance petitions must be disposed of within six months to enhance administrative efficiency and address taxpayer concerns promptly. Addressing these issues can streamline tax compliance and reduce litigation burdens.
Page Contents
- 1. TDS on Partners’ Salary, Interest and Drawings
- 2. Removal of draconian sections from 68 to 69 F and 115 BBE
- 3. Mandatory mentioning of the reasons for re-opening the case u.s 148 in the notice itself
- 4. Partner Salary under Presumptive Taxation
- 5. Fixing time for disposal of rectification petition – 30 days at all levels – AO, CIT Appeals and ITAT and automatic stay
- 6. Time limit for passing revisional orders by the jurisdictional officers basing on the orders passed by the Appellate Autorities.
- 7. Time limit for disposal of appeals – CIT Appeals & ITAT
- 8. Marginal Relief under Old Tax Regime (OTR)
- 9. Time Limit for disposal of grievance petition
1. TDS on Partners’ Salary, Interest and Drawings
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, against which there will not be any income. 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 reduce the liquid cash available with the Partnership Firms.
2. Removal of draconian sections from 68 to 69 F and 115 BBE
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 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. But 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 they are scrapped. Even if they are going to be tax evasion by assessees the Income Tax Act is already equipped with stringent provisions to tax them, penalise them with heft penalties and even prosecute them. So, these sections are to be removed from the statute to reduce litigation.
3. Mandatory mentioning of the reasons for re-opening the case u.s 148 in the notice itself
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 whether the reasons spelt out are valid or not.
4. Partner Salary under Presumptive Taxation
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 at under presumptive basis u.s 44AE only.
5. Fixing time for disposal of rectification petition – 30 days at all levels – AO, CIT Appeals and ITAT and automatic stay
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. While on-line rectification petition is being filed there is no option to spell out the defects/errors in the order and the CPC simply process the return filed once again and sends the same order, which is of no use.
6. Time limit for passing revisional orders by the jurisdictional officers basing on the orders passed by the Appellate Autorities.
As of now there is no time limit for passing the ‘revisional orders’, to be passed by the jurisdictional officers basing on the orders made by the CIT (Appeals)/ITAT which results in undue hardship to the assessees due to non-receipt of refund due/reduction of the existing demand. A time limit of 30 days is to be fixed for the Jurisdictional officers to pass orders based on the orders passed by the appellate authorities.
7. Time limit for disposal of appeals – CIT Appeals & ITAT
There are lots of cases pending before Assessment/Appellate Authorities viz. NFAC (National Faceless Appeal Centre) the CIT (Appeals) and ITAT (Income Tax Appellate Tribunal). It is high time that a time limit is fixed for disposal of appeals by all 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.
8. Marginal Relief under Old Tax Regime (OTR)
By promoting the New Tax Regime (NTR) the Government discourages 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 of premium for Life Insurance Policies, Repayment of Housing Loans etc. The assessees have made such long-standing commitments since long standing tax reliefs were promised to them for such payments. The followers of OTR should be given the marginal relief, which is available for followers of NTR only, wherein for example the tax payable is Rs. 13,208 if their income is Rs. 5,01,000 and if their income is Rs. 5,00,000/- there is no tax liability. Demanding a tax of Rs. 13,208/- for an additional income of Rs. 1,000/- is against the principles of law and natural justice. Likewise, they should not be compelled to file under NTR if they file belated returns.
9. Time Limit for disposal of grievance petition
As of now it seems that the grievance petitions are not monitored and disposed off within reasonable time. Hence it is requested that there should be a provision in the Act to monitor such petitions and to dispose of them at least within six months.
Author Bio
Let’s hope that the issues highlighted in the article are taken care of in the new Income Tax Act in the anvil.