Expectation of the Common Taxpayers from “Never Before” Budget 2021
“Send me your inputs so that we can see a Budget which is a Budget like never before, in a way. 100 years of India wouldn’t have seen a Budget being made post pandemic like this” -Smt. Nirmala Sitharaman
2020 was not only a year of contingency & surprises but also a year of new lessons. It has almost turned out to be a ‘zero year’. Amidst all this, the Union Budget for the financial year 2021-22 will be presented in the Parliament on February 1st, 2021. Expectations are high after the Finance Minister has declared it to be a “Never Before” Budget. Here are some of the key expectations of the common taxpayers from the Budget 2021:
- Reducing Impact of Surcharge: New manufacturing companies are eligible for income tax @ 15%. Even the Corporate Tax in general has been reduced to 22% without any capping (effectively tax rate – 25.18% with surcharge and Cess). However, the rate of personal Income Tax is still at 30% for all income above Rs 10 Lakh or Rs. 15 Lakh (as per the optional schemes offered to the individual taxpayers). In addition to 30% of tax rate & 4% of Cess, there is a surcharge (better known as the Super Rich Tax) if income exceeds Rs. 50 Lakh. The surcharge ranges from 10% to 37%. The effective tax rate for High Net worth Individual (HNI) goes up to 42.75%. High rates of tax acts as a discouragement for taxpayers and results in tax evasions/ avoidance. The tax rates including all Cess & surcharges need to be capped in the range of 30% to 35% for better sentiments & tax compliances.
- Rationalizing the Tax Rates of Firm/LLP:
Due to administrative cost & convenience, the number of firms/LLP’s are much higher as compared to the Companies registered in India. The lower tax rates for companies as compared to Firm & LLP looks little unfair & discriminatory. Lowering the tax rates for such entities will be the real sentiment booster for the economy. Hope, the income tax rates will be aligned in line with the corporate tax rates. - Lower rate of TDS:
The liquidity crunch in the business is likely to continue in the FY 2021-22. The reduction of TDS rate by 25% was announced for FY 2020-21 due to prevailing pandemics Covid -19. It may be continued in the FY 2021-22 as well. This will ensure better cash flow amongst the taxpayers. - Disallowance for Cash Payment Exceeding Rs. 10,000/-:
Any payment exceeding Rs. 10,000/- is disallowable u/s 40A(3) of the Income Tax Act – 1961. Though the aim is to promote digitized mode of payment, still there are situations where transactions in cash is the only option. The disallowance in such cases may be restricted to 20% as against 100% at present. - Tax under Sec. 115 BBE:
Section 115BBE provides for levy of tax on certain income @ 60% which is further subject to surcharge @ 25% & Cess @ 4%, resulting in aggregate tax rate of 78%. If the addition is done by the Assessing Officer then penalty @ 10% of tax is also attracted U/s 271AAC resulting in total liability of 84%. The rate was enhanced from 30% to take care of the unexplained deposit of cash during demonetization. This huge tax rate is only adding to the tax litigations and disputes, resulting in piling of appeal cases. It needs to be restored to the original tax rate of 30%.
- Upward revision of Personal Income Tax Slab:
Lower tax rate results in better tax compliances and discourages tax evasions & avoidance. The personal income tax exemption limit has not yet been changed since long though the alternate tax regime for personal taxation U/s 115BAC was offered in the last Budget – 2019. Basic exemption limit, tax rate & tax slab may be revisited in following way:
a) Basic exemption limit should be enhanced to Rs. 5 Lakh for all categories of the taxpayers.
b) Income in the range of Rs. 5 Lakh to 10 Lakh should be made taxable @ 10%.
c) Income in the range of Rs. 10 Lakh to Rs. 25 Lakh should be subject to tax @ 20%.
d) Income exceeding Rs.25 Lakh should be subject to tax @ 25%.
Needless to say, reduction in the maximum rate of taxation @ 25% would help in developing a better tax compliant society.
- Enhance the threshold limit under Section 80C of the Act:
In a country where there is no system of social security, investment habits need to be promoted by offering tax sops. Further, the overall maximum deduction limit of Rs. 1.50 Lakh u/s 80C towards LIC/PPF/Tuition fees, etc was fixed long back & has not been revisited since then. It needs to be enhanced to at least Rs 2.50,000/-.
- Taxation u/s 50C, 43CA & 56(2)(x) vs, Removal of taxation on Notional Basis:
Section 50C, 43CA & 56(2)(x) provides for taxation of immovable property transactions on notional basis wherein if the property is sold / purchased below its stamp duty valuation, the difference between actual sale consideration & stamp duty valuation is liable for income tax in the hands of seller as well as buyer. There are various situations like distressed sale, sale of encroached property, sale of disputed property, sale of mortgaged assets by banks & various other factors which make it impossible to sell the property at FMV. Exclusions for such situations need to be provided in all above sections.
Further, reference to DVO option is presently available only to the Assessing officer which can happen only after the transaction is completed i.e., the sale deed is executed. It is suggested that the option be given to the assessee to approach the AO for getting a DVO report even before the transaction is executed. It could be subject to payment of prescribed fee to the DVO. This option is going to remove the contingency involved in the property transactions.
Why Not remove Notional Scheme of Taxation:
Levying tax on real income is the right of the Government & is also considered by the taxpayers as their duty. However, levying tax hypothetical income makes the tax environment complicated & burdensome for the taxpayers, more so when the department is flooded with information and well equipped with the system of checking/cross checking the transactions. It calls for revisiting all the notional tax provisions which were introduced as an anti-abuse measure. It’s only the actual income received by an assessee which should be chargeable to tax.
- Increase in the limit of Standard Deduction for Salaried Taxpayers:
With lowest cost of collection & lesser possibility of tax evasion, salaried taxpayers are left with little choice to save tax. They need to be respected by increasing the amount of standard deduction limit from Rs. 50,000/- to Rs. 1 Lakh at least for taxpayers with income exceeding Rs. 10 Lakh.
Taxpaying population is very less as compared to the size of the country. There is no recognition & incentives to the taxpayers. With the advent of Information Technology, special incentives & privileges can be offered to taxpayers by offering priority on various fronts like railway reservation, court cases, healthcare services, etc. Hope 2021 Budget lays down the roadmap of recognizing the taxpayers of the country.
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