Along with the extension of due dates for filing returns, the dates for passing assessments have also been extended and both these measures were inevitable.
By Tarun Gulati
The Covid-19 pandemic has caused severe disruption to economic activity. Both governments and businesses are faced with a similar dilemma—fall in revenue streams and escalating costs. Governments globally are rallying around their populations to stimulate revival. In India, a mammoth stimulus package of Rs 20 lakh crore was announced by the PM. A mere look at the measures announced on the direct tax side suggests that this is not a stimulus package at all. It is a photoshopped bouquet masqueraded as stimulus package.
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First, to provide liquidity to taxpayers, a reduction of 25% in rates of TDS/TCS on payments made to Indian residents was announced. This would apply to payments to contractors, professionals, commissions, brokerages, etc. While this will put more cash in the hands of some resident Indians, can this be regarded as a stimulus? TDS rates may have been reduced, but there is no reduction in the tax rate applicable to Indian residents. The tax liability will not come down. Advance tax liabilities will also remain the same. If there is some temporary relief by lowering the rate of TDS, it will not result in a lower tax liability and the tax will have to be made good by way of advance tax. If advance tax is not paid, interest will be charged. This TDS reduction can only be regarded as a temporary reprieve and a half measure. Unless there is a reduction in the ultimate tax liability of the taxpayer, the short-term fix that has been attempted has limited efficacy.
The reduction also does not apply to TDS on salaries. This is because TDS is not deducted at any specified percentage, but the entire tax liability of the employee is deducted at source by the employer. In the absence of any reduction in the overall tax liability of the employee, there cannot be any reduction in the TDS rate on salaries. A large part of the middle class salaried population will get no benefit from this TDS rate reduction.
The second point made was on income tax refunds. It was stated that many refunds of less than Rs 5 crore were cleared in the recent past. This is a clear admission that large corporate tax refunds were not being cleared. The legislative intent is that income tax refunds that are due should be cleared expeditiously. Retention of refunds should be made only in exceptional circumstances. But time and again corporates have been driven to courts to seek directions for refunds where they were unreasonably detained. Recent examples are the Punjab & Haryana High Court granting a refund of Rs 325 crore to Huawei, and the Supreme Court allowing Vodafone Idea Rs 733 crore refund. These refunds are of money that has been overpaid by a taxpayer to the government. The money belongs to the taxpayer who is entitled to use it. In times of distress, this money is a lifeline. Such corporates cannot be deprived the use of their own money in these times. In the current announcement, it has been said that refunds will be granted to non-charitable trusts, professionals and non-corporate businesses including proprietorships, partnerships, LLPs and cooperative societies. Why are corporate businesses left out? And the grant of refunds selectively, can it be a stimulus at all? Not allowing the use of their own money to corporates in these times is imminently unfair.
Extension of due dates for filing returns cannot be regarded as a stimulus. Along with the extension of due dates for filing returns, the dates for passing assessments have also been extended and both these measures were inevitable. There is no magnanimity in extending the dates for deposit under the Vivad Se Vishwas Scheme.
A reduction in PF contribution from 12% to 10% both by employers and employees may put some more cash in the hands of the employee. The government makes no contribution in this and the cost is borne by the employee. Only for eligible enterprises where the government makes the contribution would there be some direct relief provided by the government.
The government may have its own fiscal challenges as tax revenues have plummeted, but corporate earnings have also taken a severe beating. If the government expects corporates to carry its payroll cost without dilution, it can do more to give ‘real’ relief. It is undoubtedly a tightrope walk and the government may not have enough fiscal elbow room to do any more than what has been announced. But these are not the times where attractive packaging will be popular.
The author is senior advocate, Supreme Court