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Friends, as I pen down this Taxalogue, the Festival of Harvest ‘Makar Sankranti’ is being celebrated all over India, with great vigour, vibrancy and delight, and the Union Budget 2023 is also being awaited with equal zeal and enthusiasm.
I can’t help myself in drawing an analogy in as much as that just as the agriculturists have harvested and celebrated the previous year’s crops and are now planning enthusiastically for the next year, similarly, our law makers have reaped the fruits of the Union Budget 2022, with both the direct and indirect tax collections reaching all times highs, and are now brainstorming meticulously on the Union Budget 2023 proposals.
Well, some brainstorming has also been done by me, and I have also prepared my ‘Bucket List’ of ‘Pre-Budget 2023’ wishes and expectations, based on my identification and assessment of some real and practical gaps and grey areas in the Direct Tax Laws domain, and the same is being shared below. Hope you all will also relate with these.
1. Reduction in Allowable Time Period for Issuing Notice for TDS Verification and Passing Order considering Assessee as an Assessee in Default u/s 201/201(1A)
With a view to bring about certainty and conclusiveness to the exercise of annual income tax return filing by the taxpayers, the recent Finance Acts have reduced the statutory time period for issuance of Regular Assessment as well as Reassessment Notices.
The statutory time period for issuing Notice u/s 143(2) for AY 2022-23 is 30.6.2023, i.e., three months from the end of the financial year in which the return is furnished. The Finance Act 2021 has reduced the time period for issuing reassessment notices u/s 148 to three years from the earlier six years, in cases where escapement of income is less than Rs 50 lakhs.
Currently both assessments and reassessments are being conducted in a faceless manner, except in search and international taxation charges.
These well-intended measures aimed at bringing in the much-needed certainty and stability in the taxation regime, have surely began to bring in the desired results.
However, inspite of these, there still remains a very big ‘Elephant’ roaming freely in the room, but somehow, not being seen by the law-makers.
Yes, I am talking about the elephant of ‘TDS verification Notices issued u/s 201/201(1A)’ of the Income Tax Act.
Surprisingly, the allowable time-period for issuance of Notice and passing of TDS verification Order u/s 201(1)/201(1A) remains to be seven long years from the end of the financial year in which the corresponding expenditure has been booked by the assessee, or two years from the end of the financial year, in which rectified TDS return has been filed, whichever is later.
So currently, when we are about to bid adieu to the FY 2022-23, and the Finance Ministry is about to bring in the Finance Bill 2023 for FY 2023-24, the TDS assessing officers are busy in completing TDS verification assessments for the long elapsed FY 2015-16, as the same can be done up till 31.3.2023, by virtue of section 201(3) of the Income Tax Act.
Surely, this long allowable window of seven long years of available time period with the income tax authorities in the TDS charge, is clearly in contradiction to the well-intended and sincere efforts of the law-makers in bringing in the much needed stability and certainty in the taxation regime.
More worse, this window under section 201/201(1A) is often being misused by asking the assessees to furnish the plethora of records and documents and the bulky and cumbersome reconciliations, after the elapse of seven long years, even when the regular assessment for that particular financial year has been concluded long ago.
Further, this TDS verification exercise u/s 201/201(1A) is still being conducted in manual mode, and not in the faceless manner, and even the DIN Nos are mentioned manually on Notices u/s 201/201(1A) and the authentication of same in the Income tax portal often brings no effective results.
So, its high time that the Law Makers actually ‘SEE this Elephant roaming freely in the Room’, and take due cognizance of the undue hardships being faced by the taxpayers and fix the time period for issuance of TDS verification Notice u/s 201/201(1A) to be three months from the end of the financial year to which the corresponding expenditure pertains, and the time period for completion of such TDS verification and passing of Orders u/s 201/201(1A) within a period of 9 months from the issuance of corresponding Notices.
2. One-time window for allowability of unutilized MAT credit while switching to New Concessional Tax Regime u/s 115BAA or 115BAB
The Taxation Laws (Amendment) Act, 2019 has inserted two new sections 115BAA and 115BAB w.e.f AY 2020-21, giving the option to the corporate entities for availing the benefit of lower corporate tax rate of 22% plus surcharge in case of existing domestic corporate entities and 15% plus surcharge in case of new domestic manufacturing corporate entities incorporated on or after 1.10.2019.
The corporate entities opting for new concessional tax regime u/s 115BAA or 115BAB are exempt from the applicability of MAT u/s 115JB. However, by virtue of section 115JAA(8), such corporate entities are not allowed to take credit of their unutilized MAT Credit, in computation of their income tax liability and as such the unutilized MAT Credit becomes a dead loss for such corporate entities. So, this restriction is acting as a major deterrent for such corporate entities to switch to the new regime.
The Government also wants more and more assessees to switch to the new regime, to reduce the complexities in return filing and assessments arising out of the plethora of deduction claims of the assessees applicable in the old regime.
Therefore, an appropriate amendment in section 115JAA(8) is desirable to be considered by the Law Makers in the upcoming Union Budget 2023, so as to provide for a one-time window for the allowability of unutilized MAT Credit, while switching to the new regime u/s 115BAA or 115BAB and in order to bring parity, this amendment should be made applicable retrospectively w.e.f. 1.4.2020, when these new sections 115BAA and 115BAB were inserted in the Legislature.
3. Rationalisation of New Reporting Clause 44 in Tax Audit Report (TAR)
In the TARs for FY 2021-22, a new reporting clause 44 has been made applicable which mandates breaking up of total expenditure incurred by the auditee company into GST and Non-GST expenditure and further GST expenditure into GST Registered/Unregistered & Composite Dealers.
It needs to be appreciated that such voluminous and cumbersome mandated reporting in Clause 44 of TAR, has no effect on the allowability or disallowability of such expenditure in the computation of income, and is only acting as a serious compliance burden without any consequential benefit.
Therefore, this unwanted and undesirable reporting burden in clause 44 of TAR needs to be withdrawn, to ensure ease of compliance and ease of doing business.
4. Ensuring suitable checks & balances in blind application of Rule 8D in making disallowance u/s 14A in respect of exempt income
The equituous and meritorious objective, purpose and the legislative intent of bringing in the expenditure disallowance section 14A, in respect of exempt income, has somehow, been turned down into an unfettered, unlawful, and arbitrary, demand raising instrument, in the hands of the assessing authorities. This section was inserted to prevent any unjust enrichment in the hands of the assessees, however, ironically, now this provision is being used as an instrument of ensuring unjust enrichment of the Exchequer, in the form of huge and exorbitant demands.
Blind application of Rule 8D, is the biggest threat to the legislative intent, sanctity, and existence of the Statutory Exemptions and Exclusions being categorically provided and mandated under Section 10 of the Income Tax Act. The taxpayers now fear more about the probable tax implications of their tax-free income rather than their taxable income.
However, in achieving the short-sighted objective of raising big income-tax demands in assessments, under the guise of section 14A/Rule 8D, and thereby compelling deposition of at least 20% of such demands, for completion of revenue collection targets, the far bigger, more relevant and much more significant and crucial long-term vision and objective of raising of adequate capital funds by the Govt. of India, and big Financial Institutions and entities like NHAI, PFC etc. for the development of infrastructure facilities in the Country and for revival of demand etc., and incentivizing key growth sectors through section 10 exemptions, is knowingly or unknowingly being jeopardized and hampered by such misdemeanors.
Therefore, it is an urgent need to address this grave issue of raising of exorbitant demand by invoking the deeming fiction of disallowance as per Rule 8D and make suitable amendments in section 14A read with Rule 8D to curb their blind and unlawful application by the by the assessing authorities.
5. Ensuring speedy refunds by doing away with the withholding provision in section 241A can produce better results to inject liquidity in the economy than the fiscal packages.
6. Increasing ‘safe harbour limit’ from the present 10% to 20% permanently in sections 50C, 43CA & 56(2)(x) can help a lot in boosting the real-estate sector.
7. Measures for increasing Disposable Income such as rationalizing the advance tax instalments mandating the payments of 25%-50%-75% instead of the existing 60%-75%-90%, extension of similar benefits of reduced tax rates u/s 115BAA & 115BAB to firms and LLPs, extending the benefit of presumptive taxation u/s 44ADA to partners of firms and LLPs, can result in increased disposable income for consumption, both in the hands of individuals and corporates and thereby augmenting the demand for the revival of the economy.
Prayer: Dear FM, kindly do take due consideration of my above ‘Bucket List of Pre-Budget 2023 Wishes’ as the same is not some wishful and abstract thinking but instead is the real, practical and ground-level brainstorming aimed at redressing some long pending issues in the Direct Tax domain.
This Article has also been published in Taxmann with the Citation [2023] 146 taxmann.com 264 (Article)
