EXPECTATIONS FROM BUDGET CUM MEMORANDUM
So far, 2022 has been a challenging year for the global economy. “The recovery of the global economy following the pandemic-induced shocks was halted in the wake of the Russian invasion of Ukraine, posing headwinds to the growth prospects and fuelling global inflationary pressures. Several shocks have battered the global economy, which was already weakened by the pandemic.”
Focus should be given on the Faceless system, compliance simplifications etc to promote ease of doing business in both Income Tax and GST
We would like to make following suggestions on Income Tax & GST as our Pre-Budget Memorandum for Budget 2023
A. INCOME TAX
1. Rate of Taxation on Partnership Firms
Issue
Many MSME adopt Partnership Firms model of business as compared to corporate or Proprietorship Model.
Existing Provision:
But Firms are taxes at 30% tax rate + surcharge + Cess from the income starting from Rs. 1. Whereas the rate of tax is 25% in case of corporate entities & exemption slab is available in case of Proprietorship business
Recommendation:
Lower rate of tax should be allowed for the Partnership Firms also to facilitate the MSME.
2. Harmonise tax rate for resident investors on unlisted shares issued by DPIIT recognised start-ups
Levy tax on long term capital gain earned by resident investors on sale of shares of DPIIT recognised start-ups at par with non-resident investors. Alternatively, in case it is not possible to provide the above framework, it is suggested to reduce the rate of long-term capital gain tax for certain types of investors (like domestic AIFs, government managed/ owned funds, QIBs, Portfolio Investors etc.) to invest in start-ups from the rate of 20% to 10%
3. Harmonise the period under S.79 in which loss was incurred with the definition of start-up provided in DPIIT Notification No. G.S.R. 127(E) dated 19th February 2019
Amend S. 79 to allow an eligible start-up to carry forward and set off losses, if such losses have been incurred during 10 years beginning from the year in which the start-up is incorporated.
4. Rationalise emoluments threshold for claiming deduction under S. 80JJAA
S.80JJAA provides an additional deduction of 30% for 3 years for employing additional employees with monthly emoluments less than INR 25,000. The limit of monthly emoluments (i.e., INR 25,000) was introduced vide Finance Act, 2016.
Considering inflation and a nominal rise in remuneration, increase the eligibility threshold to cover employees with monthly emoluments of up to INR 50,000 per month (from INR 25,000).
5. Transfer of Rural Agricultural land
[Relevant Provisions: Section 2(14), 115JB of Income Tax Act, 1961]
Issue:
Transfer of Rural Agricultural land is chargeable to tax for calculation of MAT u/s115JB.
Existing Provision:
Income on transfer of Rural agricultural land is not excluded from the calculation of book profit.
Recommendation:
As agricultural land is not covered under the definition of Capital asset, capital gains on transfer of the same is not taxed. Suitable provisions may be introduced to exclude this Capital gain while calculating Book Profit for the purpose of MAT.
6. Filing of Revised Return
[Relevant Provisions: Section 139(5) of Income Tax Act, 1961]
Issue:
Extension of due date for filing revised return.
Existing Provision:
As per the current provisions, due date is 31st December of the respective assessment year
.Recommendation:
It is suggested that the time for filing revised return be extended till the end of the relevant assessment year for the benefit of tax payers.
7. Disposal of Rectification Petition
[Relevant Provisions: Section 154(8), 246A of Income Tax Act, 1961]
Issue:
Delay in disposing of Rectification petition and filing of appeal for such non-action.
Existing Provision:
As per Section 154(8), an order of rectification in respect of an application filed for rectification shall be passed within a period of six months from the end of the month in which the concerned application has been received by the concerned Income tax authority. If the AO fails to pass an order of rectification within the period mentioned aforesaid, there is no provision for filing of an appeal and for such non –action of the authorities, the assessee suffers.
Recommendation:
It is suggested that in section 246A, an appropriate provision maybe introduced to allow an assessee to file an appeal against the non-action of the concerned Income tax authority in disposing of a rectification petition within the time limit specified in section 154(8) within the said time limit.
8. Tax payment at higher rates by eligible taxpayers
[Relevant Provisions: Section 44AD (1) of Income Tax Act, 1961]
Issue: Amendment in 44AD of the Income Tax Act, 1961.
Existing Provision:
As per the existing provisions, eligible taxpayers have to pay taxes at higher rates even after audit in the first year of operation of the section.
Recommendation:
Suitable amendments may be made to allow small taxpayers eligible u/s 44AD to pay lower taxes as prescribed in the provisions in the initial year of operation of the section also.
9. Information required under Clause 44 of Form 3CD
[Relevant Provisions: Clause 44 of Form 3CD]
Issue:
Difficulty in maintenance of detailed information required under Clause 44 of Form 3CD.
Existing Provision:
As per the existing provisions, the taxpayers have to provide breakup of the total expenditure incurred and paid to registered dealers, unregistered dealers, composition dealers and expenditure exempt from GST.
Recommendation:
It is suggested to exclude the clause from Form 3CD as the required in formation is not required to be maintained under either the Income Tax or GST laws.
10. Penalty under section 270A
[Relevant Provisions: Section 270A, 273B of Income Tax Act, 1961]
Issue: Insertion of Section 270A in section 273B.
Existing Provision:
As per existing provisions, penalty imposed under Section 270A cannot be dropped even if there is a reasonable cause for the default.
Recommendation:
It is suggested that penalty should not be imposed under section 270A if there is a reasonable cause. Suitable amendment may be made in section 273B.
11. No time limit for disposal of appeal by CIT (Appeals)
[Relevant Provisions: Section 246A of Income Tax Act, 1961]
Issue:
Implementation of time limits and speedy process for the disposal of appeals.
Existing Provision:
As per existing provisions, there is no time limit for the disposal of appeals by the CIT(Appeals).
Recommendation:
It is suggested a reasonable time limit for disposal of appeals by the CIT(Appeals) should be fixed wherein delays attributable to the appellant may be excluded. Also, copies of submissions and documents filed by the appellant should be mandatorily provided to the AO to afford him an opportunity to present his views before the CIT(Appeals).
12. Alternate Minimum Tax (AMT) for firms/ LLPs
[Relevant Provisions: New regime- Section 115BAC of Income Tax Act, 1961]
Issue:
Removal of Alternate Minimum Tax (AMT) for firms/ LLPs.
Existing Provision:
As per existing provisions, firms/ LLPs have to pay tax at higher of AMT or normal tax rates.
Recommendation:
Companies under the new tax regime do not have to pay MAT. It is suggested to remove AMT for firms/LLPs on similar lines.
13.No option for new regime in belated returns
[Relevant Provisions: New regime- Section 139(5) of Income Tax Act, 1961]
Issue:
Benefit of opting for new regime not provided in belated returns
Existing Provision:
As per existing provisions, assessee is not allowed to opt for new regime even though it is beneficial if the return is belated. This puts the assessee at an additional disadvantage.
Recommendation:
It is suggested that belated return filers should also be allowed to opt for the new tax regime.
14. Changes in Tax Slabs
The taxpayers are hoping that the current basic exemption limit of Rs.2.5 lakh will be increased to Rs.5 lakh under both tax regimes. The current threshold of Rs.10 lakh for the 30% tax bracket may also be raised to Rs.20 lakh
15. 80C and 80D Limit Increase
Section 80C is a major deduction claimed by taxpayers. A hike in the current threshold of Rs.1.5 lakh to Rs.2.50 lakh is anticipated, increasing the disposable income in the hands of taxpayers.
Section 80D allows an individual to claim a deduction for payment of medical insurance premiums of up to Rs.25,000. In the case of senior citizens, this threshold is Rs.50,000. The government is expected to provide tax relief by revising the erstwhile limit of Rs.25,000/Rs.50,000 to Rs.50,000/Rs 1 lakh, respectively.
16. Standard Deduction
An increase in the standard deduction limit from Rs.50,000 to Rs.1,00,000 may also be seen in both tax regimes. There has been a significant increase in medical expenses and fuel costs since its introduction. Therefore, there is a strong argument for increasing the standard deduction from its current limit of Rs.50,000 to Rs.1 lakh.
17. Home Loan Interest Rates
Currently, taxpayers can claim a deduction for interest paid up to Rs.2 lakh on a home loan. This limit may be revisited because EMIs have skyrocketed in the last several months due to RBI's changes in the repo rate.
18. Surcharge Rate
The higher tax brackets of Rs.5 crore are charged an effective tax rate of 42.744%, a significant portion of an individual’s income. This rate needs to be rationalised to ensure that the taxpayer has a higher in-hand salary and no investment outflow from the country. This will cater to the high-net-worth individuals as well.
19. Enhancement of Other Deductions
An increase in the threshold under Section 80TTA (Deduction on saving bank interest), 80EEA (interest on housing loan) and 80EEB (electric vehicle loan) are also expected. Currently, an individual can claim a deduction of Rs.10,000 on saving bank interest. An extension of the current lock-in on 80EEB by two years may also be made to give a thrust to the electric vehicle sector.
20. Children's Education and Hostel Allowance
With the rising cost of education, it is reasonable to raise the limits to Rs.1,000 and Rs.3,000 per child per month (for up to two children), respectively.
B. GST
1. ITC reversal for failure to pay to suppliers within 180 days
[Relevant Provisions: Second Proviso to section 16(2) of CGST Act, 2017
Central Goods and Services Tax Act, 2017
Issue:
ITC reversal for failure to pay to suppliers within 180 days.
Existing Provisions:
Second proviso to section 16(2) provides that if recipient fail to pay to the supplier amount towards the value of supply along with tax payable there on within 180 days from the date of issue of invoice, ITC availed on such supplies shall be added to the output tax liability along with interest thereon.
Payment terms depends upon the mutual agreement between the parties. Credit from Suppliers is an important source of short-term credit facility specially in the case of small businesses where they may find it difficult to get working capital loan from the banks. These small entities play an important role in supply chain and employment generation. This proviso adversely affects such suppliers.
Recommendation:
This provision should either be omitted or registered person upto to a certain threshold limit of aggregate turnover should be excluded. Our suggestion for aggregate turnover is 20 crores.
2. ITC blockage on standard / normal loss arising out of manufacturing process
[Relevant Provisions: Section 17(5)(h) of the CGST Act 2017]
Issue:
Denial of Input tax credit on standard/normal loss
Existing Provisions:
Section 17(5)(h) of the CGST Act 2017 provides that a registered person is not eligible to avail ITC on goods lost. Ambiguity lies as to whether ITC on normal loss arising out of manufacturing process is covered under this clause or not. It has been seen in many cases that department is raising demand for reversal of ITC on standard/normal loss arising during manufacturing process therefore increasing the cost of manufacture of products.
Recommendation:
It is suggested that suitable amendments should be brought in to clarify that normal/standard loss shall be outside the ambit of section 17(5)(h).
3. Interest on delayed set-off of cash liability
[Relevant Provisions: Proviso to Section 50(1) of CGST Act, 2017]
Issue:
Interest on delayed set-off of liability where cash ledger has been already credited with the requisite payment.
Existing Provisions:
Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall, for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent, as may be notified by the Government, on the recommendation of the Council.
Proviso to Sub Section (1) of Sec. 50 was amended to substitute retrospectively with effect from 1st July 2017, vide section 112 of the Finance Act 2021, to charge interest on net cash liability w.e.f. 1st July 2017.
Interest is computed on the net tax liability and debited from Electronic Cash Ledger after Input Tax Credit is utilised. In many cases, it has been noticed that though the amount has been paid in CASH ledger by the registered person, however, due to delay in reflection in cash ledger, delay in set- off of the amount in GSTR 3B, interest liability is being charged by the department.
Recommendation:
It is suggested that in cases where the cash ledger has already been credited within the due date with the net cash liability to be paid and which has only been set off after the due date, no interest should be charged in such cases as the registered person has already made the payment of his cash liability and setting off of such liability subsequently is only a procedural matter for which he should not be penalised as he does not gain anything in the process as the amount paid by him has already been debited from his bank account. Similar provisions exist in case of advance tax payment under Income Tax Act, 1961.
4. Interest on annual reversal of Input tax credit under Rule 42/43 of CGST Rules, 2017
Central Goods and Services Tax Rules, 2017
[Relevant Provisions: Rule 42/43 of CGST Rules, 2017]
Issue:
Interest on annual reversal of ITC linked to section 50(1) instead of section 50(3) of CGST Act
Existing Provisions: Rule 42 and 43 of CGST Rules, 2017 provide that reversals should be computed annually and done vide FORM DRC-03 or in FORM GSTR-3B filed for the month of September of succeeding financial year. It has been stated that interest for the said reversal shall be done at the rate specified in section 50(1) of CGST Act 2017.
Recommendation: It is suggested that Interest on Input tax credit reversal should be linked to section 50(3) of the CGST Act 2017 instead of section 50(1).
5. Refund on account of inverted duty structure
[Relevant Provisions: Section 54(3) of CGST Act, 2017 read with Rule 89(5) of CGST Rules, 2017]
Issue:
Revision in formula for calculating refund
Existing Provisions: As per the statutory provisions stated above, in the case of refund on account of inverted duty structure, refund of input tax credit is be granted as per the following formula: –
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services)x Net ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply ofgoods and services.
Above formula for claiming Refund was revised in line with the Directives from Supreme Court, to establish rationality/ balance.
Recommendation:
It is suggested that the amendment in above formula should begiven retrospective effect to establish the same rationale, even for the earlier periods.
6. Full payment of Govt. dues as a result of an appellate order
[Relevant Provisions: Section 119 of CGST Act, 2017]
Issue: Full payment of sums due to the government as a result of an order passed by the Appellate tribunal.
Existing Provisions:
Section 119 provides that notwithstanding that an appeal is preferred to High Court or Supreme Court, sums due to government as a result of an order passed by the Appellate tribunal shall be payable in accordance with the order so passed.
Recommendation:
Such provision adversely affects the businesses till the issue is reached to a logical conclusion. It is suggested that instead of full payment, there should be provision for a pre-deposit of certain percentage of sums due.
7. Place of Supply on Ocean Freight services for goods exported from India to a place outside India
[Relevant Provisions: Proviso to section 12(8) of IGST Act 2017]
Issue:
Denial of Input tax credit to the recipient and Indian shipping line being put in a disadvantageous position as compared to the foreign shipping line.
Existing Provisions:
Exemption on transportation of goods through vessels to a place outside India has been withdrawn with effect from 01.10.2022, thus, bringing such supply within the ambit of taxable supplies.
As per proviso to section 12(8) of IGST Act 2017, where an Indian Shipping Line provides such transportation services to a person registered in India, the place of supply shall be the destination of goods i.e., “96-Other Country” and IGST shall be charged on it.
Since the Place of supply in such cases shall not be state of recipient, the availability of input tax credit charged on such supplies are being disputed by the department. Further, blocking of such credits would adversely affect domestic shipping lines as exporters will avail services of foreign shipping line to avoid tax burden.
Recommendation:
It is suggested that this proviso should be removed. Location of the registered recipient should continue to be the place of supply to avoid disputes. Further, the exemption of such services should also continue to put the Indian shipping lines at par with the foreign shipping line.
OTHER ACTS
1. To Prevent under-invoicing
The government need to took robust steps to stop China and Bangladesh from sending under-billed products. Their dominance has ruined the Indian market.
2. To controlling fluctuation in steel rates
Reduction of tax rates and also taking measures to encourage people to adopt vehicle scrapping policy for smooth functioning of the fastener industry, there is an urgent need to bring down the rates of steel raw material and maintain stability in the rates. We are expecting that in this Budget the finance minister will consider our request to re-impose export duty on steel raw material from which important products like fasteners are made.
3. To raise the import duty on products coming from China
It would protect the local industry. The import duty on various products like bicycle parts, screw, nut- bolt, coming from China should be raised to protect the local manufactures. In a pre-budget recommendation,
4. To consider a cut in the custom duty imposed on machinery and equipment’s to provide a relief to the MSME sector
5. Research & development / Exhibition centres at Ludhiana
Focus should be given on the Faceless system, compliance simplifications etc to promote ease of doing business in both Income Tax, GST & other acts. Personal visits, inspections, surveys etc should be minimized to bring the ease of doing business in reality. Further Lowering tax rates would promote Industry to pay taxes at their own.
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