The council of Institute of Chartered Accountants of India every year submits Pre-Budget Memorandum to Government. The Memorandum contains suggestions for consideration of government while formulating tax proposal for the year under consideration. Though Council of ICAI has made lot of suggestions related to Direct Taxes for year 2020-21, but in this blog we will be sharing the Key Highlights of the Pre-Budget Memorandum which are common and which we want our readers to be aware of. So, read it till the end and enhance your knowledge. Also you may subscribe our Telegram Channel for Daily Professional/Taxation/Economy related Updates. Search “professional sansaar official” on Telegram and Subscribe.
SUGGESTIONS RELATED TO CHAPTER III INCOME WHICH DO NOT FORM PART OF TOTAL INCOME
1) Section 10(12A) – Extending the benefit of tax-free withdrawal from NPS to non-employee subscribers under section 10(12A) (40% of the Total Amount Payable to Employee as well as Non Employee)– Similar amendment may also be made in section 10(12B) in case of partial withdrawal by non employee (Exempts 25% of contribution in case of partial withdrawal by Employee only) .The said amendment would also be in line with the intention of the legislature to provide a level playing field to both types of subscribers to NPS i.e. EMPLOYEE AS WELL AS NON EMPLOYEE.
2) Amendment is required in Section 10(23C): to exclude “Corpus Donation” from the requirement of mandatory application of income by such trusts / institutions just like section 11(1) read with section sec 12 and thus will not compel the Institutions coming within the scope of section 10(23C) to apply even their corpus donations to the day to-day activities for getting the exemption
3) 10(32) Amendment: At present income of minors included in the hands of parents is exempt to the extent of Rs.1, 500/- for each minor. It is suggested that this should be raised to at least Rs. 5,000/- for each minor child.
4) As per Sec 12AA if order of granting approval or refusal of application for registration is not passed within 6 months then status of registration has not been defined. It is suggested to insert a proviso to section 12A/12AA such that non-disposal of application for registration u/s. 12A within prescribed period will be considered as deemed registration
SUGGESTIONS RELATED TO CHAPTER IV PART D PROFIT AND GAINS OF BUSINESS AND PROFESSION
5) Taxability of the Non-Compete Fee in the hands of recipient needs clarification since some HC Judgements treated it as Capital Expenditure eligible for Depreciation while others treated it as Revenue Expenditure.
6) As per FA 2018, Conversion of CA into SIT is taxable as Business Income (FMV-Cost of Inventory on date of conversion). It is suggested to provide deferment of payment of tax on business income from conversion of stock in-trade to capital asset till the final disposal of such capital asset to avoid hardship of payment of tax on unrealized gain and bring parity with the method adopted on conversion of capital asset into stock-in-trade.
7) Fee on Incorporation of a Company is allowed as deduction u/s 35D as per specified limits in 5 Instalments, however amount paid for increase in authorized capital is not allowed as deduction at all, though the amount is paid to government as a fee. It is suggested that fee paid to Registrar of companies for increase in authorized capital may be allowed as revenue expenditure in 5 equal instalments u/s 35D.
8) It is suggested that the due date defined under Explanation to Section 36(1)(va) should be amended and accordingly the due date shall mean the due date for filing return of income under section 139(1), thereby bringing it at par with the due date specified for the Employer’s contribution under Section 43B of the Act. It may also be kept in mind that delay of few days should not debar to claim the actual expenditure under Income-tax law as due interest is already charged under relevant laws.
9) FA 2014 had added a new Explanation 2 in sub-section (1) of Section 37 providing that any expenditure incurred by an assessee on the activities relating to CSR referred to in Section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession and deduction shall not be allowed. Ideally there should be no bar on allow ability of CSR expenditure under the Act.
10) It is suggested that limit for allowable remuneration for each of the working partner be changed at the rate of Rs. 1,80,000 per annum per partner or 90 percent of book profits whichever is more for first Rs. 10,00,000 of book profits and 75 percent of the remaining book profits.
11) Section 44AD relating to presumptive taxation applies only to businesses run by residents Individual, HUF and Firms excluding LLP. The benefit of section 44AD should also be made available to LLP
SUGGESTIONS RELATED TO CHAPTER IV PART E CAPITAL GAINS
12) It has been suggested to raise the threshold limit for presumptive taxation in case of profession to at least Rs. 1 Cr from present Rs.50 Lakh and rate of Income to be reduce to 30% from present 50%
13) Section 54EC: Time limit for investment in specified bonds is presently 6 months from the date of transfer. It is suggested to amend section 54EC so that time limit for investment in specified bonds may be allowed up to the due date of filing of ITR. Further, considering the inflationary conditions in the economy, it is further suggested that the said limit of Rs.50 Lakhs may be raised to Rs. 1 crore.
14) We all know one of the major amendments by FA 2018 in Capital Gain Chapter i.e. 55(2)(ac) (Grandfathering of Cost). It is suggested to bring clarity in determining the cost of acquisition in case of merger/demerger etc.(If X ltd. is merged with Y ltd., then whose FMV we have to take on 31st January) u/s 55(2)(ac) by amending the said section or by issue of a clarification.
SUGGESTIONS RELATED TO CHAPTER VI AGGREGATION OF INCOME AND SET OFF
15) Section 71(3A) – Loss from House Property: Section 71 of the Act provides for set off of any loss arising under the head “Income from House Property” against any other head of income. As per section 71, it is restricted to set off the losses to the extent of Rs 2, 00, 000 against any other head of income and the unabsorbed loss to be carried forward up to subsequent 8 assessment years. This has restricted Investment in real estate as the amount of interest paid is always higher than the rental income. It is therefore suggested to withdraw the said amendment. Alternatively, the limit of Rs 2 lakhs may be raised to at least Rs 5 lakhs
SUGGESTIONS RELATED TO CHAPTER VIA DEDUCTIONS IN RESPECT OF CERTAIN PAYMENTS
16) The annual limit for contribution to PPF be increased to Rs. 3 lakhs from the present ceiling of Rs. 1.5 lakhs.
17) The limit for deduction under section 80DDB for expenses incurred on treatment of certain chronic diseases may be increased
18) Amendments required in Section 80EEA (Tax Incentive for Affordable Housing) It is suggested that section 80EEA (1) may be amended as follows (by inserting the words ‘or construction’ akin to provisions of section 54 and 54F). It is suggested that limit of Rs 45 lakh as the value of residential house property may be raised appropriately.(say to Rs 55 lakhs).
19) Section 80TTA was inserted by the Finance Act, 2012 to provide deduction of up to Rs.10,000 in the hands of individuals and HUFs in respect of interest on savings account with banks, post offices and cooperative societies carrying on business of banking. Interest on all types of deposits (eg FDRs) may also be included within the scope of section 80TTA.
20) The Finance Act 2018 inserted a new section 80TTB so as to allow a deduction upto Rs 50,000/- in respect of interest income on deposits made by senior citizens. It is suggested that income by way of interest on National Savings Certificate also be included within the ambit of provisions of section 80TTB, so that senior citizens who have purchased NSCs from post offices are also able to avail the benefit of enhanced deduction under section 80TTB.
SUGGESTIONS RELATED TO CHAPTER XII/XII-D DETERMINATION OF TAX IN SPECIAL CASES/DISTRIBUTED PROFITS
21) Currently, the benefit of reduced tax rate is given to companies engaged solely in the business of manufacturing. It is suggested that section 115BAB(2)(b) may be amended so as to enlarge the activities undertaken by manufacturing companies under it (eg ancillary trading/job work.
25) In order to encourage small shareholders to invest in domestic companies, it is suggested to drop the requirement of grossing up the dividend distribution tax rate.
SUGGESTIONS RELATED TO CHAPTER XIV ASSESSMENTS
26) It is suggested that section 139(1) may be appropriately amended so that due date to file ITR for working partners of a firm which is liable to furnish its ITR by 30th November of the AY (due to application of section 92E) be synchronised with the existing due date of 30th September of the AY applicable for working partners of such firms. It may kept in mind that non-working partners have to give balance of capital accounts in ITR. So, all partners should have same ITR filing due date as that of a firm.
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SUGGESTIONS RELATED TO CHAPTER XVII COLLECTION
27) It is suggested to raise the threshold limit of Rs. 5000.00 to Rs 10,000 u/s 194A applicable to deductors other than bank.
28) Section 194 IA Ammendments: The provisions for tax deduction is causing hardship to those sellers who claim full capital gains exemption by investing the capital gains or the net consideration, as the case may be, in the manner provided in section 54, 54F, 54EC etc.
It is, therefore, suggested that section 197A may be amended to permit the assessee to make an application to the Assessing Officer for issuing a certificate for no deduction of tax or deduction of tax at a lower rate. In the alternative, the seller may be permitted to give a declaration to the Assessing Officer and furnish a copy of the same to the buyer. Also it is suggested to reduce the threshold limit to deduct tax from Rs. 50 lakhs currently to Rs. 30 lakhs
29) It is suggested that section 194J be amended to provide an independent limit of Rs.30,000, above which remuneration or fees or commission to director may be subject to tax deduction at source.
30) It is suggested that section 206C(1F) be amended so as to include within its ambit all goods and services transactions exceeding Rs 10 lakhs excluding transactions on which TDS is applicable as well as Export transactions
All the efforts have been made to present the law carefully and only major points have been covered in this blog. In case of any error/discrepancy, you may write to me at connect with [email protected]