Elimination of Black Money
The Finance Minister Mr. Arun Jaitley in his Budget Speech underlined that one of the main priorities of the Government is to eliminate black money component from the economy. He highlighted the positive role of demonetization in reducing corruption, increasing digitization of the economy and transferring the resources from the tax evaders to the Government for deployment in the welfare schemes for the poor. In this direction, the main objective of the tax proposals include, inter alia, promoting digital economy and ensuring transparency in political funding.
i. The measure to reduce the presumptive taxation rate from 8% to 6% in respect of non-cash turnover is a welcome move, especially since it is to be made applicable from the current year itself. Limiting deduction in respect of cash expenditure, whether capital or revenue, to Rs.10,000 (as against the existing limit of Rs.20,000) and limiting cash donation which can be received by a charitable trust to Rs.2,000 are positive measures to discourage cash transactions.
ii. On the indirect taxes front too, BCD, Excise/CV duty and SAD on miniaturised POS card reader for m-POS, micro ATM standards version 1.5.1, Finger Print Readers/Scanners and Iris Scanners, have been exempted to promote cashless transactions. Further, parts and components for manufacture of such devices have also been exempted to encourage domestic manufacturing of these devices.
In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating a resource crunch for its various welfare programmes. Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash.
i. Further, in order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, transaction above Rs.3 lakh in cash would not be permitted. In case of contravention , penalty equal to the amount of such receipt would be leviable.
ii. The initiative in this Budget to cleanse the system of political funding in India by restricting permissible cash donation from any person to Rs.2,000 is certainly a step in the right direction, since a political party cannot claim exemption of its income if it does not comply with this condition. In this context, amendment is also proposed to be made in the the Reserve Bank of India Act to enable issuance of electoral bonds in accordance with a notified scheme; and these bonds can be purchased by the donor from authorized banks against cheque and digital payments only.
Considering that this is the first budget with impetus on transparency in electoral funding, it is hoped that the stringent and bold measures proposed this year would have the positive effect of ensuring transparency in electoral funding.
Significant issues addressed: MAT, GST & RAPID
i. The issue relating to the requirement of specific provisions for computation of Minimum Alternate Tax (MAT) in case of Ind AS compliant companies has been addressed in this Budget. Since certain companies have already become Ind AS compliant from FY 2016-17, incorporation of requisite provisions in the Income-tax Act, 1961was the need of the hour. ICAI will study this proposal in detail and make appropriate suggestions to the Government, if it is felt that any change(s) is required.
ii. The reforms in tax administration frontier to be in the form of a “RAPID” approach; RAPID standing for Revenue, Accountability, Probity, Information and Digitisation. The present Government has reaffirmed its plan to enforce greater accountability of officers of Tax Department for specific act of commission and omission, which is a welcome move, considering that accountability is a necessary counter balance for proper discharge of responsibilities. The assurance that an honest tax-compliant person would be treated with dignity and courtesy would, if actually implemented, bring relief to the genuine tax payers at large.
iii. Considering that introduction of Goods and Services Tax is round the corner, the Finance Minister has not tinkered much with the excise and service tax. He updated the Lok Sabha with the substantial progress on the GST front and is hopeful of implementing the same at the earliest. He confirmed that the extensive reach-out efforts to trade and industry for GST will start from 1st April, 2017 for spreading awareness of the new taxation regime. ICAI, being a partner to the Government in nation building, assures to continue its full-fledged support in this GST awareness drive of the Government.
As regards the Chartered Accountant community, which has always been competently discharging its professional obligations with due care, the proposal levying penalty of Rs.10,000 for furnishing incorrect information in certificates/reports furnished by them under the Income-tax Act, 1961 may also be kept in mind.
Measures for stimulating growth and Ease of doing business
i. The tax rate for corporate Medium and Small Enterprises (MSMEs, i.e., companies with annual turnover of upto Rs.50 crore) is proposed to be reduced to 25%. Rationalisation of corporate tax rate for MSMEs is expected to benefit 96% of companies. This would leave more money in their hands for working capital and/or capex. It is indeed a positive measure for promoting growth and employment as well as encouraging firms to migrate to corporate form of organization.
ii. However, this proposal does not provide a level playing field to LLPs, since the rate of tax is pegged at 30% for LLPs, irrespective of the turnover limit. A corporate form of organization may not always be preferred due to extensive compliance obligations.
iii. Another move to stimulate growth is the introduction of an enabling provision for carry forward of MAT credit for a further period of 5 years (i.e., from 10 years to 15 years)in respect of all companies. This proposal is expected to provide some relief to the corporates who were having tall expectations of bidding farewell to MAT this year.
iv. Banking sector has also been given its fair share in this Budget by increasing the allowable provision for Non-Performing Assets from 7.5% to 8.5%. Further, the benefit of taxing interest on actual basis rather than accrual basis in respect of NPA accounts is proposed to be extended to non-scheduled co-operative banks also.
Coming to the proposals for ease of doing business, professionals opting for presumptive taxation scheme can heave a sigh of relief as they would have to pay advance tax in one installment in March every year.
Restricting scope of domestic transfer pricing provisions to related party transactions wherein one party is entitled to profit linked incentive is a welcome move which will reduce associated compliance burden.
However, the reduction of the time period for revision of a return by one year, may not facilitate ease of doing business, since the time period for filing a belated return and a revised return would expire on the same date. The enabling provision introduced last year permitting revision of a belated return would also lose its significance.
The absence of any reference to GAAR in the Budget Speech further confirmed by absence of specific provision in the Finance Bill, 2017 for deferment of GAAR leads to an inference that GAAR would come into play from 1st April, 2017. The clarifications given by the CBDT have several riders and therefore the tax implications of GAAR on the transactions and businesses is not very clear. This would create uncertainty in the minds of taxpayers and increase the scope for litigation.
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