1. Rate of Taxes and Surcharge :
1.1 Section 87A is amended to give rebate to those who adopt New Tax Regime by allowing the entire tax up to Rs. 25,000 as deduction for those whose income is Rs. 7,00,000 or below, while for those who adopt the Old Tax Regime the existing deduction of the tax is up to Rs.12,500 and the income limit of Rs. 5,00,000 is continued. For those who are in the Old Tax Regime, due to committed long term savings in insurance and other instruments, which might have been planned long ago for life, education, housing loan interest/repayment, marriage etc., it may not be practically possible to shift to New Tax Regime from the Old Tax Regime suddenly. Hence it is just and equitable to deny the benefit of additional deduction to those assessees, who are in the Old Tax Regime.
1.2 Already as per the existing rates of tax and rebate u s 87A the tax payable exceeds the income that exceeds the limit of Rs. 5,00,000 fixed for claiming rebate u s 87A for those whose taxable income is up to 5,15,620 under old regime and Rs. 5,13,890 under new regime. Now, since the limit for claiming rebate for new regime is increased to Rs. 7,00,000 the tax payable exceeds the income that exceeds up to Rs. 7,27,780. Hence it is suggested to provide marginal relief of limiting the tax payable to the amount that exceeds the limit of Rs. 7,00,000. For example, if marginal relief is not given for the income of Rs. 7,01,000 the tax payable will be Rs. 25,100, which is not fair.
1.3 Since because collecting Surcharge @ 37% on the Income Tax payable, which is collected from the assessees whose taxable income is more than Rs. 5 Crores is very much on the higher side (in total the tax effect is 42.7%, which is the one among the highest in the world), the same is reduced to 25% (which is applicable for Income above Rs. 2 Crores) for those assessees who follows the New Tax Regime. Again, denying this benefit to those who follows the Old Tax Regime does not seem to be fair. If it is felt that the tax including the Surcharge is on the very much on the higher side, it is for all assessees and as there seems to be no logical reason for discrimination, it should be made available for those assessees, who follow Old Tax Regime also.
Union Budget 2023
2. Presumptive Tax:
2.1 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.
2.2 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 arrived @ 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 per Heavy Goods Vehicle and Rs. 7,500/- p.m. for other vehicles are estimated as income. Here also concession may be given for promoting non-cash transactions by allowing deduction of 5% of the receipts in mode other than cash.
2.3 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 and to calculate income @ 50% on the receipt of reimbursement of expenses is not correct. Hence such receipts should be allowed to be deducted from the gross receipts for arriving at the calculation of 50%.
2.4 Section 44AD (4) reads as under:
Where an eligible assesee 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 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. 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. Assessments by NFAC:
4.1 In the Budget the difficulties faced by the assessees, who are subject to assessment proceedings by NFAC, are not addressed at all. Because of faulty orders passed by NFAC many assessees are to knock the doors of High Courts through writs and because of this the very purpose of bringing in the new system of NFAC is defeated due to writs, multiple appeals, revisions and rectifications. Hence it is suggested to form a high-level task force to streamline the assessment proceedings by getting inputs from stake holders viz. the assessees, advocates and CAs and revamp the entire system of functioning of NFAC.
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A small correction: in the first paragraph 1.1 the last sentence should be read as ‘It is not just and……….” instead of ‘It is just and ………”