Union Budget 2021 India: In the context of tax proposal announcements, it appeared that the broader theme was to simplify tax administration procedures, ease the compliance burden for taxpayers, and reduce tax litigation.
- By Ankur Pahwa
Indian Union Budget 2021-22: The past year has been an unprecedented one and the Finance Minister had a task cut-out when presenting fiscal proposals for the year ahead and one would like to believe that she has indeed tried her best given the macro circumstances involved. Significant announcements were made towards proposed expenditures (mostly substantial capital expenditures) by the government in the areas of healthcare, infrastructure, education, and labour reforms for migrant/gig-workers. The broader idea appeared to be for the government to spend on the above fiscal initiatives, which would, in turn, trigger a ripple effect (hopefully) –generate employment leading to increased disposable income, followed by bringing about increased consumer spending and consequentially leading to economic recovery.
In the context of tax proposal announcements, it appeared that the broader theme was to simplify tax administration procedures, ease the compliance burden for taxpayers, and to reduce tax litigation. In line with this theme, announcements were made to reduce the timelines for completion of tax assessments, proposal to introduce a dispute resolution committee for small and medium taxpayers, introducing a faceless regime under the Tax Tribunal (ITAT) for tax dispute resolution, increase in turnover limits to Rs 10 crores for the mandatory tax audits, specific rules for non-residents to prevent double taxation, extension by 1-year for profit-linked exemption “eligible” start-ups and for capital gains exemption for re-investment into “eligible” start-ups, etc.
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Having said the above, specifically in the context of business combinations and/or divestitures, it is being proposed to explicitly widen the scope of “slump sale” definition to include all types of transfers therein (including by way of exchange, relinquishment, etc., and not limit the definition to sale transactions). It is also being proposed to limit tax depreciation claims on the goodwill of a business/profession (barring a few exceptions of acquired goodwill). Outside of this, the scope of equalization levy for cross-border transactions appears to be widened with certain clarificatory amendments (which will largely impact e-commerce) and TDS provisions also being introduced for the purchase of goods (in certain circumstances).
From startups’ perspective, there are a few announcements to benefit them such as extending tax holiday by one year, increased FDI limits for Insurance companies, social security cover for gig economy workers, further incentivising digital payments, and enabling the incorporation of OPCs. However, we hope to hear future announcements that will address key asks such as clarity on the public listing (in India, or direct listing mechanisms offshore), deferral of taxability on share swap transactions (absent cash liquidity), reduce the burden of tax withholding blockage and GST levy in early stages, easing approval process on licenses from the RBI, etc.
Ankur Pahwa is Partner and National Leader, E-commerce & Consumer Internet, EY India. Views expressed are the author’s own.