Major Recent Reforms
I. Reduction in tax rates & Simplification of direct tax laws
Corporate Tax – It has been the stated policy of the Government to simplify the Income-tax Act, 1961 by removing exemptions and incentives while at the same time reducing the rates of taxes. Starting from the Finance Act, 2016, the corporate tax rates have been gradually reduced while phasing out the exemptions and incentives available to the corporates. In furtherance of this policy, through Taxation Laws (Amendment) Act, 2019, an option has been provided to the corporates to pay tax at concessional rate of 22% (plus applicable surcharge and cess) if they do not avail certain exemption or incentive (Ref Sec 115BAA). Further, new certain domestic manufacturing companies (set up after 1″ October, 2019 and starting manufacture on or before 31′ March, 2023) have been provided an option for paying tax at 15% (plus applicable surcharge and cess) without claiming specified exemption and incentive (Ref Sec 115BAB). Further, such companies are not required to pay MAT as well and no earlier MAT credit will be allowed.
Personal Income Tax Further, in order to reform personal Income-tax, Finance Act, 2020 has provided an option to individual taxpayers for paying Income-tax at lower slab rates if they forgo specified exemption and deduction (Ref: Sec 115BAC). Apart from the above, Finance Act, 2020 has also provided an option to the cooperatives society to pay taxes at concessional rates @22% (plus applicable surcharge and cess) subject to forgoing certain specified deduction or incentive (Ref: Sec 115BAD).
Abolition of Dividend Distribution Tax (DDT) – In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors in whose case dividend income is taxable at the rate lower than the rate of DDT, the Finance Act, 2020 removed the Dividend Distribution Tax under which the companies shall not be required to pay DDT with effect from 01.04.2020. The dividend income shall be taxed only in the hands of the recipients at their applicable rate.
II. Ease of Compliance for Taxpayers
Faceless assessment Scheme – The Faceless assessment Scheme, 2019 has been notified on 12th September, 2019 which provides for a new mechanism for making assessment by eliminating the interface between the Assessing Officer and the assessee, optimizing use of resources through functional specialization and introducing the team-based assessment.
Faceless appeals – In order to take the reforms to the next level and with objective of minimal interface and maximum governance Faceless Appeal Scheme 2020, was launched on 25th September, 2020 to eliminate human interface in the appellate function of the department between the appellant and the Commissioner of Income-tax (Appeals). The notices are to be issued electronically by a Central Cell, with cases to be allocated to Appeal Units in a random manner.
Document Identification Number (DIN) – In order to bring efficiency and transparency in the functioning of the Income-tax department, every communication of the department whether it is related to assessment, appeals, investigation, penalty, and rectification among other things issued from 1st October, 2019 onwards are mandatorily having a computer-generated unique Document Identification Number (DIN).
Pre-filling of Income-tax Returns – In order to make tax compliance more convenient, pre-filled Income tax Returns (ITR) have been provided to individual taxpayers. The ITR form now contains pre-filled details of certain incomes such as salary income. The scope of information for pre-filing is being further expanded by including information such as house property income, capital gains from securities, bank interest, dividends, etc.
Simplification of compliance norms for Start-ups –
Start-ups have been provided hassle-free tax environment which includes simplification of assessment procedure, exemptions from Angel- tax, constitution of dedicated start-up cell.
Relaxation in the norms for Prosecution – The threshold for launching prosecution has been substantially increased, a system of collegium of senior officers for sanction of prosecution has been introduced, the norms for compounding have also been relaxed.
III. Reduction in Litigation
Vivad se Vishwas In the current times, a large number of disputes related to direct taxes are pending at various levels of adjudication from Commissioner (Appeals) level to Supreme Court. These tax disputes consume a large part of resources both on the part of Government as well as taxpayers and also deprive the Government of the timely collection of revenue. With these facts in mind, an urgent need was felt to provide for resolution of pending tax disputes which will not only benefit the Government by generating timely revenue but also the taxpayers as it will bring to dose mounting litigation costs and efforts can be better utilized for expanding business activities. Direct Tax Vivad se Vishwas Act, 2020 was enacted on 17th March, 2020 under which the declaration for settling disputes are currently being filed.
Raising of monetary limit for filing of appeal –
To effectively reduce taxpayer grievances/litigation and help the Income Tax Department focus on litigation involving complex legal issues and high tax effect, the monetary thresholds for filing of departmental appeals have been raised from Rs.20 lakh to Rs. 50 lakh for appeal before ITAT, from Rs.50 lakh to Rs. 1 crore for appeal before High Court and from Rs.1 crore to Rs. 2 crore for appeal before Supreme Court.
IV. Measures undertaken to promote digital transactions
Introduction of TDS on certain cash withdrawals –
The Finance (No.2) Act, 2019 has inserted section 194N in the Act to provide for levy of TDS @ 2% on cash withdrawal exceeding Rs. 1 crore from a Bank/Post Office/Co-op society account. To ensure filing of return and to keep track on cash withdrawals by the non-filers, the Finance Act, 2020 lowered the threshold of cash withdrawal to Rs. 20 Lakh and also mandated TDS at the higher rate of 5% on cash withdrawal exceeding Rs. 1 crore by these non-filers (Ref : Section 194N).
Promotion of Digital Transactions The existing rate of deemed profit under presumptive scheme for small businesses has been reduced from 8% to 6% in respect of digital turnover.
Mandatory facility for prescribed electronic mode
of payment – It has been provided that every business entity having turnover exceeding Rs.50 crore shall provide facility for accepting payment through the prescribed electronic modes on which no MDR shall be charged(Ref : Rule 119AA).
Prohibition of cash transactions – Cash receipt of rupees two lakh or more has been prohibited. The limit of cash donation to charitable organisation has been reduced from Rs. 10,000/- to Rs. 2,000/- (Ref : sec 80G). Acceptance of cash donations exceeding Rs. 2,000/- has been prohibited for political parties(Ref : 80G). The limit for cash business expenditure has been reduced from Rs. 20,000/- to Rs. 10,000/- (Sec 40A(3)).
Measures undertaken to curb Tax Evasion & widening of tax base
Black Money Act – In order to curb the flow of black money stashed abroad, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the Black Money Act) has been enacted. It came into force w.e.f. 01.07.2015.
Benami Law – The Benami Transactions (Prohibition) Act, 1988 was comprehensively amended by the Benami Transactions (Prohibition) Amendment Act, 2016 to enable confiscation of Benami Property and prosecution of benamidar and the beneficial owner.
Expansion of scope of TDS/TCS – For widening the net of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) several new transactions were brought into its ambit. These transactions include huge cash withdrawal, foreign remittance, purchase of luxury car, e-commerce participants, sale of goods, acquisition of immovable property, etc.
Equalisation Levy – In order to effectively tackle the issue of non-taxation of the profits generated by the non-resident digital companies, India has introduced the equalisation levy @ 6% on online advertising revenue in 2016. The scope of the existing equalization levy has been extended vide Finance Act, 2020 to the other revenue streams including consideration received or receivable by an e-commerce operator for e-commerce supply or services by levying equalisation levy @ 2% (Ref : Sec 165 & 165A of Finance Act, 2016).
Reduction in tax rates to reduce tax burden
Basic exemption limit was increased from Rs. 2 lakh to Rs. 2.5 lakh.
Tax rate for the slab Rs. 2.5 to 5 lakh was reduced from 10% to 5% — reduction of up to Rs. 12,500 in tax liability.
Standard deduction of Rs. 40,000/- was introduced for salaried taxpayers which has been later raised to 50,000.
Measures to incentivise housing for the middle class
Deduction of interest for self-occupied house property was raised from Rs.1.51akh to Rs. 2 lakh.
In order to incentivise purchase of affordable house, a deduction up to Rs. 1.5 lakh for interest paid on loan taken for purchase of an affordable house has been provided. This shall be in addition to the existing interest deduction of Rs. 2 lakh.
The base year for computation of long term capital gains was shifted from 1981 to 2001, reducing the burden of capital gain tax on transfer of immovable property.
Holding period for long-term gain on immovable property was reduced from 36 months to 24 months.
Concession of 20% on stamp duty value was provided for the purpose of computation of capital gains on immovable property.
The amount of deduction for rent paid was increased from Rs. 24,000 to Rs. 60,000 for a person who does not receive HRA (Ref: Sec-80GG). Income tax relief for real-estate developers and home-buyers: Increase in safe harbour from 10% to 20% u/s 43CA and consequential relief u/s 56(2)(x) of I.T. Act, 1961 in respect of primary sale of residential units of value upto Rs. 2 cr. during the period 12.11.20 to 30.06.21.
To increase Savings and other benefits
Amount of deduction for savings under section 80C was increased from Rs. 1 lakh to Rs. 1.51akh.
The deduction limit for medical insurance was increased from Rs. 15,000/- to Rs. 25,000/-. Deduction limit for individuals with disability was increased by Rs 25,000/-.
In order to incentivise purchase of electric vehicle by an individual, a deduction of an amount up to Rs. 1,50,000 for interest paid on loan taken for purchase of electric vehicle has been provided (Ref: Sec-80EEB).
In order to promote start-ups, 100 % profit-linked deduction has been provided to eligible start-ups, which have been incorporated before the 1st April, 2021(Ref: Sec-80IAC).
Ease of compliance
Threshold limit for presumptive taxation of businesses was raised from Rs. 2 crore to Rs. 10 crore (Ref : Sec 44AD).
Threshold for maintenance of books of accounts was raised (from income limit of Rs. 1.20 lakh to Rs. 2.5 lakh and turnover from Rs. 10 Lakh to Rs. 25 Lakh) for individuals and HUF(Ref : Sec 44AA).
Presumptive taxation was provided for professionals having receipts up to Rs. 50 lakh (Ref : Sec 44ADA).
In order to ease the compliance burden on the individual tax payer, inter-changeability for PAN and Aadhaar has been provided.
The allotment of PAN and TAN through notified common application form has been enabled.
The process of issuance of certificate for no deduction of tax or deduction/ collection of tax at lower rate has made electronic.
Benefits to senior citizen taxpayers
The deduction limit for medical expenditure increased in case of senior citizens was increased from Rs. 30,000/-to Rs. 50,000/- (Ref : Sec 80D).
Deduction of Rs. 50,000/- was provided on interest income from deposits for senior citizens. Accordingly, the threshold limit for applicability of TDS on interest income was also increased from Rs. 10,000/- to Rs. 50,000/- in respect of senior citizens(Ref : Sec 80’17B).
Deduction limit for medical expenditure for critical illnesses increased from Rs. 60,000/- to Rs. 1,00,000/- for senior citizens(Ref : Sec 80DDB).
Basic limit for exemption is Rs. 3,00,000 for Senior Citizen.