Introduction: This analysis delves into key aspects of the recent interim budget, addressing proposed changes to presumptive taxation and the impact on partnership firms. It explores concerns surrounding the New Tax Regime’s impact on followers of the Old Tax Regime, emphasizing the need for fairness. The discussion also scrutinizes the Faceless Assessment scheme, highlighting challenges and proposing stakeholder involvement for improvement. Additionally, the budget’s proposal to withdraw outstanding demands is dissected, considering its limits and potential implications on assessees.
In a noteworthy announcement by the finance minister, it has been clarified that, given the interim nature of this budget, the government does not foresee making substantial amendments to the Income Tax Act, including tax rates.
1. However, despite the increased thresholds for presumptive tax – now standing at Rs. 3 Crores for Business Income and Rs. 75 Lakhs for Professional Income, there remain certain aspects within Presumptive Taxation that warrant careful consideration:
a. 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).
Indeed, the provided clause implies that an assessee cannot choose the ‘Presumptive Tax’ option for six consecutive years, inclusive of the year in which they exit the scheme, if they have not reported income under this scheme continuously for six years, starting from the initial year of scheme participation.
However, it is important to clarify that the clause does not explicitly state whether an assessee, having utilized the scheme for six consecutive years, is then free to opt for it at their discretion in subsequent years.
To address this ambiguity, if the legislative intent is to restrict the benefit for those who opt out of the scheme, it would be more precise to specify that if an assessee fails to avail the benefits of this section in any year following the year in which they initially participated in the scheme, they are barred from claiming the same benefit for the subsequent five years. In essence, this would establish a more straightforward and clear restriction on returning to the scheme after a hiatus.
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).
b. 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.
2. In the latest budget, a clear preference is evident for the New Tax Regime (NTR), with noteworthy concessions including elevated limits, enhanced marginal relief, reduced surcharge, and an increased rebate under section 87A. However, this approach appears to cast a discouraging shadow on adherents of the Old Tax Regime (OTR). The disparities between the two regimes raise concerns about fairness, especially as followers of OTR find themselves penalized for their commitment to long-term savings. Their decisions, such as subscribing to life insurance premiums and securing housing loans, were made under the encouragement to save. Yet, the abrupt shift in the tax landscape has left them entangled in these long-term commitments, prompting a call for equitable treatment that recognizes and respects their financial sincerity.
3. Likewise, while there are many setbacks such as very high pitched demands, technical issues in video conference etc., in the Faceless Assessment as well as in Appeals Scheme, the Government is bent upon in promoting the same while many of the orders were struck down by ITAT/High Courts. They should take into confidence the stake holders viz. CAs, Advocates, Tax Practitioners and Assessees and collect the short comings and take a survey about the fate of the orders passed by the Faceless Assessment Team and then decide whether to continue the scheme or not and if it is to be continued what are all the improvements required are to be sorted out so as to give relief to the assessees who are suffering. As of now the litigations have gone up to a very great level because of the faulty orders passed by the Faceless Team. In the budget speech it is stated that they are promoting Faceless since there is accountability. But in the real sense, there is no accountability at all because nobody knows who is passing the order.
4. In the Budget it is proposed to withdraw outstanding demands up to Rs. 25,000 pertaining up to the Financial Year 2009-10 and up to Rs. 10,000 for financial years from 2010-11 to 2014-15, which is a decision taken on the right direction to avid waste of time and energy on both the sides in reminding by the Department and in denying the same by the assessee. It is to be clarified whether these limits are for taxes only or they include interest also. Again, if subsequent refunds were adjusted against the demands how will they be treated? If they are going to consider the net pending demands less refunds adjusted then such assessees will be at a loss than those, for whom no adjustments were made.
Conclusion: As the interim budget unfolds with notable amendments, it triggers discussions on presumptive taxation, fairness in tax regimes, and the efficacy of Faceless Assessment. The proposed withdrawal of outstanding demands brings relief but prompts questions about its scope and treatment of adjusted refunds. Stakeholder collaboration and further clarity from authorities are crucial for a balanced and effective tax framework. Stay informed about the evolving landscape to navigate the complexities of tax regulations.
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