By Sanjay Tolia, Partner, Price Waterhouse & Co LLP
The first Budget of the new government has clearly laid out its priorities for the growth of economy in agriculture, employment generation for youth, growth of MSMEs and empowerment of women. On direct tax front, the FM announced that the government would do a comprehensive review of the income-tax Act, 1961 in six months, and the new Act would be concise, lucid, easy to read and understand. One may wonder the need for several changes that are introduced in the bill, if the entire act is going to be reviewed in six month’s time, as the changes suggested (a) fundamental to the concept of levy of taxes on certain income (b) procedural in nature and (c) changes in the rates of taxes. However, if we analyse the context, it can be appreciated that several changes signal the intent of the government’s direction in bringing the more comprehensive Act in the near future. Some changes introduced and their correlation to the FM’s intent:
Abolition of angel tax: Angel tax was introduced in 2012 to curb money laundering by taxing the premium paid by investors in an unlisted entities as “income from other sources”. This was a huge deterrent specifically for the young entrepreneurs to attract the right capital for their business. By abolishing angel tax, the Budget pushes start-ups towards innovation and growth. This will put an end to several litigations pending at different levels.
Withdrawal of equalisation levy: Non-resident e-commerce companies that have sale operations in India without a tax presence were made to pay 2% of the transaction value as equalisation levy. This was made to get fair share of taxes from non-resident companies who make money from Indian market without creating a tax presence in India. Since negotiations are going on Pillar One implementation, the equalisation levy has been withdrawn. This is a welcome move as it was causing lot of hardship for the foreign companies to comply with this new levy and to get the credit of this levy in their home country.
Litigation and appeals: FM has announced several reliefs to reduce the pendency of appeals in various forums. FM has re-introduced Vivad Se Vishwas scheme with an open ended deadline for the tax payers. The major deterrent seems to be the premium that the tax payer has to pay to avail this scheme. But the aspect of paying a premium to settle the dispute might need to be re-examined.
Simplification of reassessment: Currently, an assessment can be reopened for a period up to 10 years from the end of the relevant assessment year. This causes a big uncertainty for the tax payers as there is no clarity for 10 years whether the assessment is final or not. This finance bill has proposed to reduce this to 5 years for normal cases and 6 years for cases involving search operations done by the tax authorities in the tax payer’s premises. It’s a welcome move to reduce the anxiety of the tax payers in providing a definitive time for reopening of cases.
Thus, all the major tax proposals in the finance bill are in line with the government’s thinking of ease of doing business with reduced litigations and paving the way to a comprehensive and easy to navigate Income-tax Act.
N Madhan, Partner, Price Waterhouse & Co LLP, contributed to this article