Budget wishlist 2015 - Highlighting various direct tax provisions

Dear Finance Minister, Make India a tax heaven…… NOW……

Respected Sir,

It’s that time of the year when you are preparing next year’s budget for presentation in parliament. Hopefully this Budget is not just an annual exercise but an effort to assimilate the populaces views. All the leading dailies are redden with industry leaders and business pundits rolling out list after list of what they expect the Finance Minister to deliver.

Here are my brief propositions on Amendments in respect of a few provisions of Direct Tax.

Boot out Tedious TDS

• TDS on component of Service Tax

CBDT has made it clear that no tax is to be deducted on the service tax component while paying the rent. It should be lengthened for other payments also (payment made to contractor, professional and technical services, for brokerage & commission, etc).Service tax is not the income of the recipient and there cannot be tax on tax.

• Higher TDS for no PAN of the Deductee

If the deductee does not provide the PAN (Permanent Account Number) tax need to be deducted at a higher rate i.e. 20% or applicable rates, whichever is higher, by the deductor. This provision is applicable both to residents and non-residents. In case of payments for royalty and technical knowhow to non residents, as per Section 9 of the Income Tax Act read with the provisions of DTAA, tax is to be deducted @ 10%. Section 206AA of the Income Tax Act should be duly amended and tax need not be deducted at a higher rate i.e 20% for payments made to non-residents for royalty and technical knowhow, etc. because this is one exception where it overrules the doctrine of International Law. A proviso should be inserted in section 206AA to the effect that the provisions of this section shall not be applicable in respect of the assessee who is not required to obtain PAN under section 139A. From revenue prospective, the rate of 20% may be increased to 35% in other cases.

• Credit for Tax Deducted at Source

The credit for tax deducted at source should be allowed in the assessment year immediately following the financial year in which the tax has been deducted at source. In other words, it also means that the credit to the deductee should not be refused on account of non-payment of TDS with the Treasury of the Government by the deductor as the deductee has no control over the Deductor. There are sufficient provisions in the law to recover the amount not deposited by the deductor who is an assessee in default.

• Threshold Limit for Deduction

Limit for the aggregate amount of interest credited or paid (where the payer is banking company, co-operative society, post office or any other person) during a financial year should be increased to Rs.20,000 for the deduction of tax.(Section 194A).

Limit for the aggregate amount credited to the account of a  contractor or sub contractor (payee) or at the time of payment whichever is earlier during a financial year should be increased to Rs.40,000 in a single payment or credit or Rs.100,000 in the aggregate during a financial year for the deduction of tax.(Section 194C).

Limit for the aggregate amount of commission or brokerage credited or paid during a financial year should be increased to Rs.20,000 for the deduction of tax. (Section 194H).

Limit for the aggregate amount of rent credited or paid during a financial year should be increased to Rs.240,000 for the deduction of tax.(Section 194I).

Limit for the aggregate amount credited or paid to the account of a payee by way of fees for professional services, or fees for technical services or royalty during a financial year should be increased to Rs.50,000 for the deduction of tax.(Section 194J)

• Certificate for deduction at lower rate or nil rate

Time limit of 30 days should be fixed for grant of such certificates from the date of application with the concerned Assessing Officer and in case of non receipt of certificate within the prescribed period, the application shall be deemed to have been granted. Certificate for lower or nil deduction of tax u/s 197 (1) of the Act is received after a ample time gap of 3-6 months from the date of application and hence the assessee is subjected to higher deduction of tax till the date of receipt of certificate which is outside the power of the applicant.

Bring Out Good news for salaried class

Exemption limit for Leave salary should be increased to 600,000 [Section 10(10AA)]

Exemption limit for Retrenchment Compensation should be increased to 600,000 [Section 10(10B)]

Exemption in respect of House rent Allowance (HRA) an amount equal to 50 per cent of salary to be allowed where residential house is situated anywhere in India. [Section 10(13A) Rule 2A]

Exemption limit for Children Education Allowance should be increased to Rs.2,000 per month per child up to a maximum of two children [Section 10(14)]

Exemption limit for Hostel expenditure Allowance should be increased to Rs.2,000 per month per child up to a maximum of two children [Section 10(14)]

Exemption limit for Transport allowance should be increased to Rs.2,000 per month  [Section 10(14)]

Exemption limit for Medical Reimbursement should be increased to Rs.30,000 [Section 17(2)(v)]

Exemption limit for Medical Treatment outside India (subject to condition that gross total income does not exceed Rs 2,00,000) should be increased to Rs.400,000 [Section 17(2)(vi)]

Expenditure on provision of free meals in excess of Rs.100 per meal should be treated as perquisite (Circular No.15/2001).

Value of gift, voucher or token, as the case may be, up to Rs.10,000 in aggregate per annum would be exempt from considering as perquisite (Circular No.15/2001).

Interest-free/concessional loan should not be considered as taxable perquisite if aggregate amount of loan is below Rs.100,000 [Section 17]

Exempt commuted value received by an employee from the superannuation corpus standing to his credit at the time of resignation, to the extent the same is already taxed at the initial contribution stage under Section 17(2)(vii) [Section 10(13)]

Exempt Leave Travel Concession for Foreign Travel. Section 10(5) allows exemption for assistance or concession received from employer for employee and his family on leave to any place in India. There is no provision in the Act which covers the travel outside India.

Rationalize ensuing Provisions

Extend the due date from September 30 to October 15 of the assessment year for getting the books audited and submission of audit report. September 30 being the day for half yearly closing of accounts for banks generates dilemma as far as the payment of tax is concerned. [Section 44AB]

Provisions of Clubbing of Income should be applicable to the gifts made by a Hindu Undivided Family (HUF) to the wife, minor child, or daughter in law of any of its male or female members (including karta) and where the assessee withdraws funds lying in capital of the firm in which he is a partner and advances the same to his HUF which deposits the said funds back into firm, the said loan by the assessee to his HUF should be treated as transfer and income arising from such deposits should be assessed in the hands of the assessee.  [Section 64]

Deduction will be available in respect of repayment of principal amount towards settlement of loan taken for higher studies. This deduction is not available from the assessment year 2006-2007. [Section 80E]

The STT paid may be allowed as deduction by including it in the cost of acquisition and selling expenses under the Capital Gains. It will help in strengthen the capital market.

As per section 244A interest is computed @ 6% per annum on tax refunds payable by the Government however in cases of interest payable by the assessee to the Government, such as in section 234B, rate is 12% p.a. An identical form rate of interest of either 6% or 12% p.a. both for refunds and tax dues payable by the Government and assesses respectively may be prescribed.

The amount of Penalties as per Sections 271D and 271E should be evaluated and reduced to pragmatic levels. The penalty u/s 271D and 271E should be confined to maximum marginal rate of tax (say 30 %) instead of 100% of the amount of loan or deposit taken or refunded in violation of the provisions.

Flat levy of penalty of Rs.5,000 under section 271F irrespective of the income of the assessee or tax payable by him is not rational. It causes lot of burden on small taxpayers. Likewise the present penalty is not based on the period of delay. Therefore the penalty should be prescribed @ Rs. 300 per month of delay or 10% of tax payable whichever is higher (after deducting TDS and Advance Tax paid) by such assessee.

Bump up various monetary limits

Deduction in respect of Life Insurance premia, deferred annuity, contributions to provident fund etc. should be increased to Rs.200,000 [Section 80C]

Deduction in respect of subscription to Long term infrastructure bonds should be reintroduced. Section [80CCF]

Deduction in respect of Health Insurance premium should be increased to Rs.25,000 for self/ family and also upto Rs. 25,000/- for insurance in respect of parent/ parents of the assessee. [Section 80D]

Deduction in respect of interest on housing loan in case of self occupied property should be increased to Rs.300,000 [Section 24(b)]

Exemption limit for clubbing of minor’s income should be increased to Rs.10,000 for each minor child up to a maximum of two children [Section 10(32)]

Limit for Payment made otherwise than by account payee cheque should be increased to Rs.50,000 and Rs.100,000 in the case of payments made for plying, hiring or leasing buses {tour operators} in addition to goods carriages and the disallowance be restricted to 20% of the excess payment and not the entire payment. [Section 269SS] [Section 269T] [Section 40A(3)]

Limit for the income in the nature of family pension, the amount deductible should be increased to Rs.30,000 or 50% of such income, whichever is less. [Section 57(iia)]

For Small scale industrialists it is very difficult to calculate/estimate the tax liability for whole year in September or December, because many times they get good business at the fag end of the year. Hence, their liability of advance, tax should have provision to pay by Mar.15 without and overdue Interest/Penalty and the threshold limit should be enhanced to Rs 30,000/ from the present value of Rs 10,000/-.[Section 234B]

Monetary limits pertaining to the transactions such as payment to hotels & restaurants, payment for acquiring shares, mutual fund, deposit in cash with a bank or Post Office Saving Bank etc. where every person must quote his Permanent Account Number (PAN) should be enhanced.

Choice is yours, Mr.Finance Minister…….

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