Small taxpayers like retirees with mainly interest income could soon be spared the hassle of facing a higher outgo as tax deducted at source (TDS) and then seeking refunds. Also, professionals with gross receipts up to Rs 1 crore may be given the facility to show just 33.3% of the receipts as income and pay tax on the same at the applicable rate, instead of going through the rigmarole of getting expenditure to that extent certified by the taxman. Experts said 90% of the professionals in the country would fall under the proposed presumptive tax rule.
These simplifications apart, if the suggestions made by the justice RV Easwar committee — and put up on the income tax department’s website on Monday — find their way to the statute book, corporates and individual taxpayers could have lower tax liabilities on the “surpluses” from share sales. According to the panel, in cases where shares are held as capital assets for one year or less and the annual gains don’t exceed R5 lakh, the taxman won’t have the freedom to re-characterise the surplus as “business income”.
While short-term capital gains tax is currently levied at 15% for listed firms, the tax rate on income of domestic companies is 30%.
Also, if the shares are held for more than a year, the surplus would be treated as long-term capital gains that currently attract zero tax in case of listed securities — provided the firm concerned doesn’t show the shares as stock-in-trade and seek to offset the losses from its other activities against the gains here.
The Easwar committee also recommended easing of the audit compliance for businesses and professionals. It suggested the turnover threshold for mandatory audit of the books be raised from from Rs 1 crore to Rs 2 crore for businesses and Rs 25 lakh to Rs 1 crore for professionals. Also, it proposed that requirement of keeping books of accounts be relaxed and aligned with the requirement of audits.
Significantly, the committee said no penalty should be imposed on a taxpayer if he has taken a position, relying on court cases/tribunal rulings etc.
Tax experts welcomed the committee’s suggestions saying these, if implemented, would help reduce litigation and the hassles of small taxpayers. “Some of the substantive recommendations of the Easwar committee are very pragmatic; more notably, the recommendation to defer Income Computation and Disclosure Standards (ICDS) is laudable as is the recommendation on simplifying the classification between capital gains and business income,” said Ketan Dalal, senior tax partner, PwC India.
The committee recommended that the TDS (withholding tax) rates for interest income and commission be halved to 5%. It also sought raising the TDS thresholds — from Rs 2,500 to Rs 15,000 for interest on securities, from Rs 10,000 to Rs 15,000 for interest on bank fixed deposits and from Rs 2,500 to Rs 15,000 for NSS deposits. The committee found that 80% of individuals and HUFs getting their tax deducted at source fell in the tax bracket of under 5% while the TDS rate was 10%
These changes would mean that several thousands of individual taxpayers won’t have to pay higher initial taxes and then seek refunds later. The committee also proposed disincentives for tax department when it comes to holding refunds.
It recommended amending Section 14 A of the I-T Act to provide that dividend received after suffering dividend distribution tax and share income from firm suffering tax in its hands won’t be treated as exempt income and “no expenditure will be disallowed as relatable to them”. This is touted to be a major area of litigation.
“The recommendations seek to address many of the ground-level issues being faced by the taxpayers. Some of the procedural reforms on TDS and e-governance initiatives in the report, if implemented will help improve the business sentiment in the country. Some of the reforms are to be undertaken through the Budget process, while others can be implemented through necessary clarifications in the form of circulars, etc,” said Vikas Vasal, partner (tax), KPMG in India.
Some experts pointed out that the 33.3% norm for computing income of professionals could pose a problem for high-income professionals who show even lower portion of their receipts as income.