Budget -2022 & Rationalization of the Tax Related provision
Budget -2022 & Rationalization of the Tax Related provision
1st February 2022, Smt. Nirmala Sitharaman will be presenting her 4th Budget in succession. The Union budget is not only a time to plan for the collection and expenditure of the Government but also the time to review the tax policy of the country. This is the time when the Government either introduces new provisions or modifies the existing one to enhance the tax collection or plug the loopholes. This is the time when the existing provisions are revisited in order to rationalize it. There are few important provisions discussed here-under which needs revision so as to avoid the unintended hardship to the taxpayers. Hope it may find the place in the Union Budget 2022:
1. Simplifying property related Taxation issues: (a) Section 50C, 43CA & 56(2)(x) of the Income Tax Act- 1961 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 issues which make it impossible to sell the property at its Fair Market Value (FMV). An exception can be carved out in the following situation:
i) Sale of Industrial properties which are owned or leased by State Industrial Development Corporation across the country.
ii) Sale of property in bank auction
iii) Distress sale
iv) Transfer pursuant to a court order.
The taxation provision needs to be amended so as to provide the exclusion for all such categories of the transactions.
(b) Levying tax on real income is the right of the Government & is also considered by the taxpayers as their duty. However, levying tax on 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.
(c) Further, the option to refer the property for valuation to the Departmental Valuation Officer (DVO) is presently available only to the Assessing officer (AO) which can happen only after the transaction is completed i.e., the sale deed is executed. It is suggested that the options 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 fees by the taxpayers. This option is going to remove the contingency involved in the property transactions.
2. No presumptive scheme of taxation for F & O & Intra-day Transactions in shares: Income from Future & Options (F&O) transactions and Intra-day share transactions is taxable under the head “Income from Business & Profession”. There is no immunity from the presumptive scheme of taxation for such income/loss. As a result, many taxpayers doing these transactions are unnecessarily required to get the books of accounts audited which is unwarranted for the reason that all such income is well backed by proper documentation and records from the share broker. By Budget 2022, hope these transactions get excluded from the purview of the presumptive scheme of taxation u/s 44AD.
3. 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.
4. 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%. Reasonable tax rate reduces the litigation and creates the atmosphere of trust and confidence amongst the taxpayers as well.
5. Change in Re-assessment provisions: The Finance Act 2021 has totally replaced the old scheme of reassessment and provided for an altogether new scheme. It has reduced the time limit for reopening the assessment from 6 years to 3 years. However, the period is stretched to 10 years if the Assessing Officer has evidence in his possession that the income escaping assessment is represented in the form of asset & such income is Rs. 50 lakhs or more. The new provisions of re-assessment were made effective from 01-04-2021. However, the CBDT has extended the time-limit for issuance of notice under the old reassessment scheme to 30.06.2021 by exercising the powers conferred under Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
Issuance of the notices after 01.04.2021 has been a matter of litigation and the 4 High courts (Allahabad, Delhi, Rajasthan
& Kolkata) have already quashed the notices issued after 01.04.2021 as it is not in accordance with the law enacted by the FA-2021. Only one High court (Chhattisgarh HC) has decided the issue in favour of the revenue. Though the Income Tax Department has filed the SLP in Supreme Court against the judgment of Allahabad High Court, there are the rumors that the Union Budget 2022 may amend the Income Tax Act so as to legally justify the issuance of notices after 01.04.2021 under the old reassessment scheme. The Government has time & again have opined against the retrospective tax amendment. Hope, the Budget – 2022 does not bring any retrospective amendment so as to justify the issuance of notices after 01.04.2021.
Let us hope that the Union Budget -2022 paves the path for a tax friendly atmosphere with rationalization of the few of the measures discussed above.