Analysis of the ICAI pertaining to tax proposals of Union budget-2020-21

The Union Budget is stated to be centered around three significant themes - Aspirational India, Economic Development and Caring Society - all of which are directed towards ease of living.

A tax measure directed towards the first theme, namely, Aspirational India is the levy of health cess@5% as a duty of customs on import of medical devices to be utilised for creating health infrastructure and services. Since the specified medical devices are now being manufactured in India, this cess would also boost the domestic industry.

A handful of the direct tax proposals are directed towards the second theme, namely, Economic Development. The budget has given a fillip to start-ups by raising the threshold turnover limit for qualifying for deduction under section 80-IAC from Rs.25 crores to Rs.100 crores. The deduction can now be claimed in any three consecutive years out of ten years from the year of incorporation. Another proposal directed towards economic development is the inclusion of generation of electricity within the scope of manufacturing to be eligible for concessional corporate tax rate of 15% under section 115BAB. Further, in order to attract fresh investment, create jobs and stimulate the economy, the period of concessional rate of withholding tax@5% under section 194LC and 194LD has been extended by three years to 1.7.2023. Further, the scope of section 194LC and 194LD have been expanded to extend the concessional rate thereunder to bonds listed in stock exchanges in IFSC and municipal debt securities. Removal of dividend distribution tax, which is viewed as an additional corporate tax , would ease the burden on corporates and put more money into their kitty which can be ploughed in as working capital to boost production and profits. The indirect tax proposal directed towards this theme is the increase in customs duty on items, which are also produced domestically by MSMEs, and withdrawal of eighty customs duty exemptions. Also, introducing enabling provisions for investigation in cases of circumvention of countervailing duty and strengthening anti-circumvention measures for anti-dumping duty will promote Make in India and consequently, economic growth.

The tax proposals towards developing a Caring Society include extension of time for approval of affordable housing project for availing deduction under section 80-IBA to 31.3.2021. Further, the time limit for sanctioning of loan for affordable housing for availing deduction under section 80EEA is also proposed to be extended to 31.3.2021. The National Calamity Contingent Duty to be levied on cigarettes and other tobacco products will, in addition to garnering revenue, promote social welfare.

Corruption free, policy driven good governance is sine qua non for achieving the three significant themes. Towards this end, faceless appeal is proposed to be launched on the lines of faceless assessment for greater efficiency. Also, the there is a proposal to provide legislative backing to the Taxpayer's Charter.

The point of concern arises out of the proposals include the imposition of penalty under section 271AAD on the person who makes a false entry or omits an entry in the books of account, as well as on the person who causes the first-mentioned person to make such entry. Such penalty on the second-mentioned person is quite harsh and prone to misuse by tax authorities. Furthermore, no relief is proposed under section 273B if the person proves reasonable cause for failure. The penalty equal to the amount of false entry or omission is also quite stringent. Another significant concern is the steep increase in the threshold for tax audit from Rs.1 crore to Rs.5 crore. The loss of revenue on account of doing away with tax audit may far outweigh the benefit of cash-less transactions. Opting for new section 115BAC with beneficial tax slabs by an individual or HUF is unlikely to leave more money in his kitty, since he has to forego a host of exemptions and deductions. Fixing an upper limit for exemption of employer's contribution to provident fund, superannuation fund and NPS will adversely affect the salaried class.

New Provisions of collection of tax (TCS) u/s 206C and TDS on e-commerce u/s 194-O though would increase compliances but may widen the tax base in long run. Change of perpetual benefit to charitable entities u/s S. 12A and 10(23C) and registration u/s 80G to renewal basis for five year period would increase compliance.