Ordinary Taxpayers or Superhumans?

Our tax laws are replete with instances where taxpayers are required to do acts which are near impossible, which are beyond their powers, or for which they have to go to extraordinary lengths. Not only that, failure to comply with such provisions attracts additional taxes, interest or penalties. Unfortunately, with the passage of time, tax authorities tend to take the provisions at their face value and compliance with them by taxpayers for granted. One hoped that the recent budget would rationalise some of these provisions, but on the contrary, some new provisions have added to the taxpayers’ burden.

Let us look at some of the ridiculous provisions as interpreted by tax authorities:

• A taxpayer is expected to accurately estimate his income for the year and pay taxes in advance even on unanticipated income which may arise towards the end of the year- else he has to pay interest thereon. Tax authorities interpret advance tax provisions as requiring even a new company set up towards the end of the year to pay advance tax even before it comes into existence!

• A person required to deduct tax at source on behalf of the Government by provision of law, is supposed to obtain and mention the permanent account number (PAN) of each person to whom he is making payments subject to TDS, even though he has no statutory powers to force such person to disclose his PAN.

• Taxpayers are expected to anticipate retrospective amendments many years in advance, such as the recent one relating to provision for diminution in value of assets for computing book profits under MAT, and compute their income on that basis. Else, they are liable to pay not only taxes due to such amendments, but also interest for non-payment of such taxes earlier.

• Every year, each tax deductor is supposed to be aware of the daily actions of the President of India and ensure that the amended rates are applied from the very day that the President of India gives his/her assent to the Finance Bill !

• Every foreign company or non-resident paying any amount of taxable income to an Indian resident (other than professional fees to lawyers or CAs) is expected to deduct tax at source from such payment, and for that purpose obtain a PAN, a TAN, file TDS returns, etc., even though such foreign company/non-resident may have no office or agent or any presence in India and therefore not even be aware of such provisions. Failure to comply could result in payment of interest, penalty or prosecution of the foreign company! All this on account of having the misfortune of having had stray or even one-time transactions with an Indian resident!

Some of the additions made by the recent budget to this list are:

• Every individual or HUF buying an immovable property or shares and securities or a work of art should be a valuation expert and know in advance what the accurate ‘fair market value’ of such property is on the date of purchase (even though such value may be a mere estimate), should ensure that he buys the property or asset only at that price, and in case he is getting it at a lower price, he should either insist on paying the higher price or may have to pay tax on the discount that he is getting!

• An individual or HUF agreeing to purchase an immovable property which is under construction, is expected to anticipate at the time of booking, the ‘fair market value’ of the immovable property which would be prevalent when the purchase is completed, and ensure that the property purchase price is fixed only at that amount. If the fair market value is higher when the property is completed and handed over, he may have to pay taxes on the difference between such value and his price determined at the time of booking.

• Every business having a turnover of less than Rs.40 lakhs is expected to know in advance whether its turnover for the entire year would exceed Rs.40 lakhs or not. If it is fortunate in growing its business, and towards the end of the year its turnover exceeds Rs.40 lakhs, it would be liable for interest for nonpayment of advance tax in the first two instalments, which it did not pay based on its anticipation that it was covered under the presumptive scheme of S.44AD. Of course, it always has the choice of choosing to refuse to do additional business so that its turnover does not cross Rs.40 lakhs!

• All small business, such as tuitions, hair-cutting saloons, commission agents, traders in derivatives or shares, etc., should ensure that their profit from such transactions is at least 8% or be willing to pay taxes on 8% of the turnover/receipts, or else bear the cost of a compulsory audit!

• Developers of large residential projects need to ration out the flats that they sell to companies. If any company approaches them to acquire a large number of flats for staff quarters, even in such difficult times for the real estate industry, the developers have to choose between refusal to sell more than one flat to the company, and the tax holiday u/s.80-IB.

There are many more such provisions, which are not listed here for want of space. One hopes that such ridiculous provisions would not find a place in the new Direct Taxes Code. However, going by experience in the recent past, it is more likely that more irrational provisions will be added to the existing ones! I would love to be proved wrong in this forecast!

Gautam Nayak