Budget 2018: The countdown to the Union Budget has begun and Mr. Arun Jaitley, Finance Minister, will present the Union Budget 2018 on 1 st day of February, 2018. More than 20,000 cases are resolved every year only on Income-tax matters by the Courts and Tribunals.
Budget 2018: The countdown to the Union Budget has begun and Finance Minister Arun Jaitley will present the Union Budget 2018 on 1 st day of February, 2018. More than 20,000 cases are resolved every year only on Income-tax matters by the Courts and Tribunals. If the number of judgments are more than 20,000, then we can make only a rough idea of number of cases which are still in process of hearing in the Courts and Tribunals. These litigations are generally on fact finding issues, interpretation of statutes, wrong application of provisions, so on and so forth.
There is an urgent need to introduce new provisions or amend some existing provisions to lessen the litigations on trifling issues. Some of the provisions are either too ambiguous or are silent on certain aspects. The ensuing budget should focus more on reducing the litigations between taxpayers and tax collectors so that a feeling of goodwill and buoyancy could be developed between them.We have compiled a list of recommendations pointing out where an amendment is needed in Income-tax Act to ensure certainty and uniformity in tax treatment for the corporate taxpayers. We have also identified a few areas where the Modi government might propose new provisions to safeguard the interest of revenue in Budget 2018.
Uniformity in concessional tax rate
The Finance Act, 2015 had recommended to reduce the corporate tax rate from 30% to 25% over the next 4 years by phasing out exemptions and deductions in the Act. In the Budget 2017, corporate tax rate was reduced to 25% for companies whose gross receipts in the previous year 2015-16 were not more than Rs. 50 crores. It is recommended that Govt. should extend the benefit of reduced tax rate to other business entities, i.e., the partnership firms and LLPs. Further, the threshold limit of turnover in the financial year 2015-16 should be changed to immediately preceding previous year for which audited financials are available.
Panama Papers and Paradise Papers Leaks
In last two years, we have been witness to two major leaks, Panama Papers leaks and Paradise Papers Leaks. The govt. had also constituted a Multi-Agency Group on 04-04- 2016 to ensure speedy and coordinated investigation into these leaks. Therefore, it is expected that the Govt. might bring about some additional disclosure requirements in Income-tax Returns to ensure compliance with the FEMA provisions.
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Pollution and Environment
Pollution is serious threat to human lives and our environment and, hence, it needs to be addressed to with serious approach. We apprehend that ensuing Union Budget, 2018 might allow some tax sops to the entities who are working to curb the problem of pollutions in metro-cities.
Deduction for Employee’s contribution to ESI and EPF
Taxpayers and Revenue are often at loggerheads on the issue of allowability of deductions to the employer in respect of payment of employee’s contribution to EPF and ESI. The CBDT vide circular no. 22/2015 dated 17-12- 2015 has clarified that the employer’s contribution to ESI & EPF shall be allowed even if deposited after the due dates as prescribed under the provisions of the relevant statutes governing such funds but before the due date of filing of ITR. However the circular states that it will not apply to employees’ contributions. Since circulars aren’t binding on courts, we have witnessed various judgments supporting the taxpayers’ views on the matter. Therefore, an amendment is recommended so as to allow the deduction of employee’s contribution to welfare schemes even if it is paid after the due dates as specified in respective Acts. Modi government should look into it in Budget 2018.
Validity of Income Computation and Disclosure Standards (ICDS)
In the case of Chamber of Tax Consultants v. Union of India  87 taxmann.com 92, the Delhi High Court provided relief to taxpayers at large by striking down certain provisions of ICDS that were overriding the judicial precedents or provisions of Income-tax Act or Rules framed thereunder. The High Court held that CBDT could override the well-established legal position under the Act regarding the concept of accrual, income, prudence, materiality, etc. It is expected that the forthcoming Union Budget will bring about a suitable amendment under the Income-tax Act, 1961.
No deduction for exp. if GST not paid in Reverse Charge
GST, which came into force w.e.f. 01/07/2017, requires the supplier to make payment of GST while selling goods or services. However, in some cases GST is payable by the recipient of the goods or services and this mechanism is called “Reverse Charge”. Since the GST revenue has been declining sharply, Govt. might consider to put an additional check to ensure that business entities pay the GST accurately and in time. A provision might be introduced in the Income-tax Act to disallow a portion of the expense till GST is paid on that expense under reverse charge in Budget 2018.
Concept of ‘POEM’ needs more clarification
The Finance Act 2015 introduced the concept of Place of Effective Management (‘POEM’) to determine the residential status of foreign companies. As per POEM, if a company’s place of effective management is in India, then it shall be deemed as an Indian resident and its global income shall be taxable in India. There are many areas in the guidelines issued on POEM which create confusion and are prone to litigation. For example, if a company is treated as resident on account of its POEM being in India, it is not clear whether TDS provisions applicable to foreign companies or provision applicable to resident companies will be relevant. It is suggested that Union Budget 2018 should bring more clarity in other related provisions which distinguish between domestic companies and foreign companies.
Taxability of Cryptocurrencies
The Year 2017 is the year of boom for the Cryptocurrencies. The RBI and CBDT have cautioned the investors against virtual currencies. Despite lot of volatility and cautionary guidelines, people are still investing and trading in these currencies. It is expected that taxation and regulatory framework would be introduced for crypto currencies in the forthcoming Union Budget. It is likely that Govt. may introduce TDS/TCS provisions to curb flow of black money in Cryptocurrency market.
Retirement of a partner without distribution of asset
In a recent case, the Mumbai Tribunal has ruled that a partnership firm is not liable to pay capital gains tax if a retiring partner is just paid the amount lying to the credit in his capital accounts which is not followed by an actual distribution of capital asset. In case of retirement of a partner from the firm, there can be two possibilities – either firm dissolves or firm continues with existing partners. The existing provisions of Section 45(4) deal with the earlier situation and remain silent on the latter situation. Therefore, this is often disputed by the revenue. This gap in the provision could be plugged and the outgoing partner might be required to pay capital gains tax on all credit entries, other than remuneration, interest or share of profit, which was not charged to tax, i.e., revaluation reserve. The central government must look into the Budget 2018.