"There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation. It is unequivocally stated that CBDT never asked IRS Association or these officers to prepare such a report,"
Well Yes, this is the formal response by the official twitter handle of the Income Tax Department, concerning the 44-page Paper titled 'Force' which stands for 'Fiscal Options & Response to COVID-19 Epidemic', dated April 23, prepared by 50 IRS Officers on policies and suggestions for meeting the challenges of revenue augmentation amid COVID-19 pandemic.
All leading dailies have extensively covered and talked about the additional revenue generation measures, amid COVID-19 outbreak, being proposed in the said paper 'FORCE', such as raising of the highest personal tax slab rate to 40% for the High Networth Individuals (HNI's) with an income of above Rs. 1 crore or re-introduction of wealth tax for those with over Rs. 5 crore income, raising the equalisation levy (google tax), reintroducing inheritance tax, hiking surcharge for MNCs, having PEs in India, introducing COVID Cess, among others.
These recommendations aimed at the additional revenue mobilisation, have understandably not gone well with the stakeholders in the industry and business houses and the general masses, who are already battling out with the odds of worsening financial and liquidity position amid the ongoing lockdown forced by the novel corona outbreak.
However, in addition to these revenue generation measures, the said Paper 'FORCE' has also recommended and proposed a host of "Taxpayer Welfare Measures during COVID Crisis", which surprisingly and refreshingly have captured the pulse of the Nation and are indeed desirable and warranted at this crucial juncture.
These "Taxpayer Welfare Measures during COVID Crisis", as recommended in the said Paper 'FORCE', are being discussed as under:
Taxpayer Welfare measures during COVID Crisis
The principal philosophy underlying the taxpayer welfare measures as proposed in 'FORCE', is "Don't kill the goose which lays golden eggs."
It has been observed in the Paper and very rightly so that it is quite natural for the governments to make up for shortfall in revenue amid such pandemic and resort to excessive taxation which may lead to business failures and bankruptcies and as such may kill the goose which has the potential to lay golden eggs.
So, to ensure that long term revenue does not suffer due to short term considerations, taxpayer welfare is important.
The government has already announced certain relief measures such as:
- extension in filing of return dates
- increase in time period for making investments in tax saving instruments
- extensions in time limit for filing forms such as form 15G/15H etc.
However, a crisis like this calls for bigger tax measures which can form part of larger economic stimulus which the government provides to bring economy back on track.
Therefore, the following measures have been proposed for the short-term basis, i.e. for 3-6 months, to enable the taxpayer to withstand the uncertainty in the economy:
I. Measures to boost consumption and improve disposable income:
i. Short term capital loss made by retail investors due to recent stock market slump should be allowed to be set off from salary income.
ii. Amount spent on treatment of hospitalization due to Corona should be allowed as deduction under section 80DDB. This requires notifying Corona under Section 80DDB.
iii. The bonus or any other allowances given to the employees with annual income 10 lakhs should not be considered as taxable income at the hands of employees.
iv. The taxpayers can file return within due date and there will be option of paying the self -assessment tax after 6 months of filing the return.
v. Individual taxpayers who lost the job were allowed to defer the tax payment for 6 months or till the new job is found, whichever earlier.
vi. Withdrawal from NPS and other small saving instruments should be made 100 percent tax free. This should also apply to interest chargeable on KVP.
vii. Increased deduction for payment of interest over purchase of house, automobile etc. Increased deduction under section 80C can be provided for payment of interest over the loan taken for fresh purchase of property and automobiles, electronic items which have been made in India completely.
II. Support for MSMEs:
i. Restoring Cash Transactions Limit u/s 40A(3) and 40A(3A): The COVID crisis has hit the economy really hard and worst hit is the informal sector, what people would be looking for in this sector is hard cash. But a low limit of Rs. 10,000 may inhibit firms from dealing with workers, so the earlier limit of Rs. 20,000/- may be restored.
ii. Provision for carry back of net operating losses arising in the current and previous financial year up-to five years may be introduced. This provision will especially beneficial for start-ups. It will improve cash flow by way of immediate refund of taxes paid earlier.
iii. Due to the current crisis, there is likely to be a significant delay in tax audits under section 44AB. Thus, assesses having income unto 10 crores may be exempted from tax audit requirement for the current fiscal year only.
iv. Presumptive taxation under 44AD should be allowed at 6 percent for all transactions and not just digital transactions.
v. TDS deducted u/s192 for the employees can be deposited by the end of the FY, rather than monthly deposit. This will give relief for the deductors and ease the cash flow pressure for the business and able to maintain the payroll without any job cuts
vi. MSME whose total tax liability is less than 5/10 lacs be given a tax moratorium (deferment only) for 1 year. It will result in a positive cash flow of 33% for those
III. General tax relief measures for corporates:
Advance tax relief:
Corporate profits are likely to significantly suffer, at least in the first 2 quarters of this fiscal year. Further, owing to the prevailing economic uncertainty, corporates are likely to find it extremely difficult to estimate their tax liability in the first two quarters of 2017.Further, corporates should have the option of backloading their tax costs and enjoy a higher than normal pre-tax profit in the first two quarters.
1. Advance tax payment schedule may be rationalized to mandate a payment of only 25% of total taxes till September 2020 (u/s 234C of the Act) without payment of interest. or
Considering the reliefs and incentives announced and proposed by the government, the viability of collection of advance tax at 25%, 55%, 80% and 100% by the respective dates can be considered. OR the tax collection may be advanced in three instalments of 50% by September 15th, 85% by December 15th and 100% by March 15th to that the government can balance the reliefs with the tax collections.
2. The rates of interest on delayed payment of advance taxes could be lowered (to say 0.5 % per month from the existing 1%)
3. Further, all the taxpayers had paid advance tax in 2019-2020 based on expected incomes which did not materialize in March. They have paid extra advance tax on that account. They may be allowed to carry forward some excess of the advance tax paid to this year.
Corporate tax relief for stressed sectors:
As a one-time measure, the option of providing reduced corporate tax rate to companies can be explored. This can be proposed only for those corporates which have suffered a reduced turnover beyond a threshold (say 25%-30%) during the FY 2020-21. Certain conditions may be attached to avail the same e.g. No reduction in no. of employees, there is no re-constitution of business by way of merger / de-merger, slump sale, amalgamation etc., no other incentives are availed etc. Such an incentive will also aid the travel and tourism industry, including the aviation sector, which has been hard-hit by the pandemic.
Carry forward losses/MAT/AMT credit expiring on March 31, 2021 may be carried forward till March 31, 2022. Brought forward losses of taxpayers that will be expiring on March 31, 2021 under the provisions of Section 72 of the Income Tax Act, 1961 along with MAT and AMT credit under Section 115JAA and 115JD of the Act may be extended till March 31, 2022.
The "Speedy Refund programme: The Refund should be issued to all taxpayers without any distinction in a phased manner depends the fiscal cost involved. This will serve as an indirect stimulus package for the Economy and also serve as offloading the treasury liability in this regard. The interest cost involved in delayed refunds are also saved effectively.
As per the provisions of Section 241A of the Act, any refund due to the assessee on processing of return under Section 143(1) can be withheld where the tax officer (with the approval of the Pr. CIT / CIT) is of the opinion that having regard to the notice issued section 143(2) in respect of such return, the grant of the refund is likely to adversely affect the revenue. Further to the relief provided to the tax payers on grant of refund up-to INR 5L to small tax payers, in order to ensure that the corporates have sufficient liquidity to kick start their operations post the lock-down, the provisions of Section 241A of the Act should not be invoked for the returns due to be processed for AY 2018-19 by June 20. Accordingly, the refunds should be granted for AY 2018-19 upon such processing of tax return to the corporates by June 30, 2018.
Increased depreciation expenditure to promote capital expenditure
Rate of depreciation of the following assets (specified in Appendix 1 of the Income Tax Rules, 1962) that have been/will be acquired in FY 2020-21 may be increased from the existing rates-
Buildings other than those used mainly for residential purposes (currently at 10%)
Depreciation rate on plant and machinery (currently at 15%)
Increase in depreciation rates will help in raising the non-cash expense and thereby reduce the tax outflow and also serve as a stimulus for capital expenditure by the taxpayers. Similarly, the limit of 50 percent depreciation where a new asset is utilised for less than half a year should be relaxed and full depreciation should be allowed
Relief in late filing fee of ITR, TDS returns and late deposit of TDS
The relief can be extended to all taxpayers Q4 of FY2019-20, Q1 &Q2 of FY2020-21. The condition to be imposed only for the deductors who filed TDS returns within due time.
Interest on late deposit of TDS as deductible expense during FY 2020-21
To stimulate liquidity for corporates, the option of making interest on late deposit of TDS a tax-deductible expense for FY 2020-21 can be explored.
Salaries deduction u/s 37(1): It can be made weighted average of 200%. This will incentivize employers to not layoff workers. It is also important to note that relief measures should not be in general but must cater to specific sections. For e.g. –Permanent employees who are getting salaries even during lockdown (like government employees) should not be provided relief measures so as to boost revenue also.
Section 80JJAA may be amended to provide tax relief for MSMEs at the rate of 30 percent on the wages cost, on retention of 90% of workforce at full compensation and benefits till filing of return for AY 2020-21.
Losses for the previous year 2020-21 can be made a separate category and given same treatment with respect to set off and carry forward as unabsorbed depreciation.
Bring some expenditure out of ambit of section 43B: firms in this crisis will face a problem of cash flows particularly interest. Hence interest payments can be allowed on due basis as an exception to this year.
Extend the benefits of depreciation for plants in backward areas of certain states to all the states.
Amendment in section 40A (13): to bring mark to market losses due to sudden change in market conditions under the ambit of deductible expenses.
The time limit for VIVAAD SE VISHWAS scheme should be extended from 30.6.2020 to 31.12.2020 so at to benefit taxpayers who are stuck in litigation and unable to avail the scheme benefits due to lockdown.
Exemptions to the sectors under section 10A, which the government has announced will be phased out can be extended for another 5 years.
For businesses engaged in aviation companies (passengers), hotels, automobile, construction and real estate sector. TDS deduction for payment to businesses engaged in the aforementioned sectors may be waived off or be allowed at nominal rates to support the liquidity position of businesses. This can also be facilitated by an upward revision of the monetary threshold for TDS deduction.
For the real estate sector, the time limit construction of affordable housing project under to get tax relief under section 80-IBA should be extended from 5 years to 7 years considering the downturn in the economic activity due to the present crisis. Further, the requirements in terms of area of plot and the size and stamp duty value of residential units to allow the project to qualify for tax relief under the said section may be relaxed to benefit more projects than what was originally envisaged. Similarly, moratorium on the notional rent income from the inventory should be extended for another 3 years or till there is boom in the real estate sector, will bring more relief to the already stressed sector.
Support for business continuity plan implementation: Many companies and firms shifted to Work-From-Home practices during the lockdown. To promote such practices in future too, as these come with benefits such as decongesting roads, potentially increase female labour participation and so on, expenses incurred by companies in enabling Work from Home (WFH) for its employees can be allowed as an eligible business expense and weighted deduction of 150% can be considered. This could include steps like development of Virtual Private Networks, data storages etc.
ESOP taxation benefits: It can be provided to start-ups under section 192 as part of the Finance Act 2020, can be extended to regular employers for the current fiscal year who as a part of cutting their expenses can deduct the salary of their employees and grant them shares, leading to equity infusion.
Clarifications regarding determination of Place of Effective Management (POEM) of Companies: The Government should issue a clarification stating that there would be no impact on the determination of POEM of Companies under the domestic law on account ofBoard meetings taking place through video conferences and extended stays of employees in India due to travel restrictions.
IV. For the Health Sector:
DEDUCTION UNDER SECTION 35AD: currently losses under section 35AD are not allowed to be set off from profits of any other business except specified business under section 35AD. This deduction under the current year for the hospital business can be allowed to be set off from other businesses. Similarly, Manufacturing of PPE, ventilators and face masks can be notified as a specified business under section 35AD to allow deduction for all the capital expenditure done in course of setting up a new business.
Deduction under 80GGA extended to 125 percent of amount paid to any research association which has as its object the undertaking of scientific research for the purpose of developing medicines or ventilators etc. to fight the Corona outbreak.
Additional Depreciation should be allowed on machinery bought for manufacturing PPEs and Ventilators, masks, gloves etc. to support the activities to meet the increased demand in the covid-19 management.
"Zero tax for Healthcare workers": The healthcare frontline workers should be given complete relief for this FY 20-21 from paying tax. It is the appreciation for the courage of the corona warriors who fought this pandemic by risking their lives.
Concluding Remarks
Though it has been clarified by the Income-tax department that no such task has been assigned to any task-force and the recommendations and proposals contained in the Paper 'FORCE' do not reflect the viewpoint of the department and the Ministry of Finance, but nonetheless, the above-discussed taxpayer welfare relief measures as suggested and recommended in the Paper 'FORCE', are indeed very practical, pragmatic and responsive to the sentiments and requirements of the business eco-system of our Country and as such should be given due cognizance, consideration and weightage by the CBDT and the Government, to effectively accomplish the herculean task of oxygenating the economy, lying on the ventilator, amid this corona pandemic.
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