A few key steps that would help to rationalise and simplify taxes are as follows:
Rationalise and simplify withholding tax provisions
TDS/TCS on purchase/sale of goods It is recommended that the TDS provisions of section 194Q and TCS provisions of section 206C(1H) be made applicable only to payees or payers who are not registered with GST. This will then align with the Government’s intention of widening and deepening the tax net. Alternatively, instead of TDS/TCS, the purchasers/sellers may be required to file Annual Information Returns. Also, in view of divergence between definition of ‘goods’ under Sale of Goods Act and GST law, ‘goods’ may be defined precisely with exclusion for items like shares, securities, foreign currency and actionable claims.
Roadmap for withholding tax rates Government may consider laying down a roadmap for reducing the disparity in TDS rates by having only two or three categories of payments and a small “negative list” of payments which will not be liable to TDS.The suggested categories of payments could be as follows:
Salary: TDS rate at Normal slab rates
Lotteries and horse race winnings: TDS rate at 30%
All other payments: TDS rate at 2%
The suggested “negative list” of payments may illustratively include the following:
1. Payments to senior citizens
2. Exempt income payments (e.g., payments to agriculturists, North-Eastern citizens)
3. Purchases or payments to GST registered entities on which GST is paid.
4. Payments to registered charities 5. Existing payees covered by section 196 (Government, RBI, Statutory Corporations and Mutual Funds).
Banks and financial institutions
This will considerably ease the compliance burden on the taxpayers, simplify the domestic TDS regime and avoid litigation on characterisation disputes.
This will considerably ease the compliance burden on the taxpayers, simplify the domestic TDS regime and avoid litigation on characterisation disputes.
TDS / TCS certificate requirement
To reduce compliance burden, it is recommended that the requirement to issue TDS / TCS certificate can be done away with exceptions for (A) Salary TDS certificates in Form 16, (B) TDS certificates to non-residents and (C) Higher TDS/TCS where PAN is not available.
Tax Deduction at Source @ 1% under section 194O – Applicability on Farmers/ FPOs It is suggested that digital platforms operated for the benefit of farmers / FPOs should be excluded from the purview of section 194O.
Mismatch between TDS credit as per Form 26AS and ITBA
CII greatly appreciates the focused efforts made by the Government towards expeditious refunds to taxpayers through faster processing of returns under section 143(1). In keeping with this focus, it is suggested that the internal systemic issue of mismatch between Form 26AS and ITBA should be expeditiously resolved and TDS credit as appearing in Form 26AS should not be denied on the ground of mismatch with ITBA.
Form 26AS /Annual Information Statement (AIS) to include PAN of deductor, Unique TDS Certificate Number and Invoice wise break for Sales data
TDS credit should be allowed basis the Form 26AS credit, irrespective of the timing difference of purchase / sales recorded in books of taxpayer vs. TDS / TCS credit appearing in a different financial year. Alternatively, Form 26AS/AIS should also incorporate the PAN of the deductor and the unique certificate number so that the same can be reviewed and matched with the books of accounts of the company. Furthermore, the reporting of TDS under section 194Q or TCS under section 206C(1H) in quarterly TDS/TCS statements should include invoice wise break up with invoice dates such that it is reflected in Form 26AS/AIS of the taxpayer and facilitates automated reconciliation with books of account.
Personal tax provisions
a. Simplified procedure for TDS on purchase of immovable property or renting of immovable property from non-residents
For ease of procedural compliance in dealing with non-resident sellers/landlords, the withholding tax obligations may be streamlined to introduce a single challan cum return form (akin to Form 26QB and Form 26QC) wherein the resident individual will not be required to obtain separate TAN and comply with withholding tax obligations. Alternatively, the scope of Form 26QB and Form 26QC may be expanded to cover the sale consideration / rental income paid to Non-Residents also.
b. Perquisite tax in respect of Electric Cars
It is recommended that a suitable amendment is brought to the Income Tax Rules, 1962 to clarify the criteria for perquisite taxation of Electric Vehicles provided to employees by employers.
Rationalise capital gains tax structure
a. Rate structure At present, there is no consistency in tax rates or holding period for different types of instruments falling within same asset class. Even the indexation benefit differs in different situations.
Buy-back tax (BBT)
BBT should be exempted in case of listed shares wherein buy-back is under ‘open market through stock exchange’ method. Consequentially, exemption under section 12 10(34A) should also not be applicable and the transactions should continue to be subject to capital gains tax in the hands of the shareholders.
Simplify procedural compliances
a. Section 68 – Provide relief from onerous compliance burden to explain ‘source of source’ of bonafide borrowings.
It is recommended that a carve out should be made in section 68 to exclude genuine borrowings. Alternatively, power may be given to CBDT to notify ‘white list’ of bonafide cases such as (illustrative):
• Borrowings from banks, NBFCs and financial institutions
• Borrowing made by banks, NBFCs and financial institutions themselves
• Deposits, advances from customers, EMD, Security Deposit etc. accepted in ordinary course of business from customers or vendors. This measure of notifying ‘white list’ has been adopted in context of other provisions like gift taxation under section 56(2)(x), transfer of unlisted shares under section 50CA, etc.
Time limit for filing revised return
It is suggested that the time limit for filing revised returns should be extended at least till end of assessment year to enable taxpayers to claim/modify foreign tax credit in line with extended time limit available for furnishing Form 67 to claim such credit.
Improve interface with Central Processing Centre (CPC)
In order to achieve desired objectives of section 143(1) of the Act and CPC Scheme 2011, following measures are recommended for kind consideration of CBDT: –
The anomalies in ITR utility and CPC return processing software may be addressed at the earliest.
It would be good if DGIT (Systems) or relevant offices in CPC hold regional camps to interact with taxpayers and professional/industry chambers to understand such anomalies and appropriate way to address them.
• Scope of processing of income tax returns by CPC should strictly be limited to determination of any tax payable or refund due to the taxpayer or determination of any mistake apparent from the record and not beyond the same. It must be clarified that the scope of jurisdiction of CPC under section 143(1) is the same as jurisdiction under section 154 to rectify errors apparent from record and not delve into debatable issues.
• Instructions may be given to CPC to clarify that adjustments in respect of disallowance of expenditure or increase in income indicated in audit report can be made only in respect of patently disallowable items or inadvertently missed incomes after affording proper opportunity of hearing to taxpayer. In particular, no such disallowance or addition can be made where the issue is covered in taxpayer’s favour by any judicial precedent.
• Any adjustment proposed to be made by the CPC should only be made after providing complete details of the adjustment as well as sufficient time as per law for the taxpayer to furnish a response. The response must be considered by competent officer who can understand the technical and legal nuances of issues involved.
• Rule 12(i) which prohibits personal appearance before CPC may be amended to permit personal appearance through video conferencing for the limited purposes of explaining why proposed adjustment or rectification prejudicial to the taxpayer should not be made.
• Rectified applications or rectified return of income filed electronically should be disposed off within reasonable time which will surely eliminate the need to unnecessarily approach the appellate authorities seeking redressal of the unwarranted adjustments. There should be clarity on who can make the rectification and the taxpayer should not be made to shuttle between CPC/Faceless Unit and Jurisdictional AO.
• Before adopting the total income as per section 143(1) intimation as start-point for regular assessment, the AO must follow the same process as adopted for making additions in regular assessment i.e., after giving proper opportunity of hearing to the taxpayer including personal hearing where so desired by the taxpayer.
• It is suggested that before treating the grievance over CPGRAM portal as disposed/closed, the concurrence of the taxpayer must be obtained that the issue for which grievance was raised has been resolved.
Improve alternate dispute resolution mechanisms
The industry greatly appreciates the consistent measures being taken by the Government to encourage ease of paying taxes. However, as per Government’s own estimates, as on 2021-22, INR 20.8 trillion was locked in Income-tax disputes. This amounts to about 8.9% of India’s nominal GDP for the year. Thus, there is a need to minimise Income-tax litigation by improving both alternative and conventional dispute resolution mechanisms, such as:
• Faceless Appeals
• Advance Pricing Agreement (APA) mechanism
• Board for Advance Ruling (BAR)
• Dispute Resolution Scheme (D).