Income Tax 30 Jan,2020
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Pre budget conjectures, to be or not to be!
Santosh Maheshwari Partner/ Transaction Tax, BDO India

Budget 2020 is around the corner, much-awaited and welcomed by a mixed set of emotions, a lot of anxiety and expectations that give a ray of hope for improvement in current souring economic conditions.

In this increasingly sluggish and stagnating economy, very little remains to be offered by tax reduction, as a vicious circle of slow growth and high fiscal deficit seem to be clouding the incentives provided so far. In November, the fiscal deficit number was INR 8.04 lakh crores, almost touching 4% of the GDP, as against the target presented in the budget 2019 of 3.3%. This prevailing percentage could be expected to remain the same in the upcoming budget as well.

The expectations from this budget are towards speeding up economic growth. One such expectation is extension of date under section 10AA for SEZs, especially for tier 2 and tier 3 cities which are usually left behind. A clarification is to be received from the ministry regarding the section 56(2)(x) implication on the company taking over an entity which undergoes bankruptcy or insolvency. Shares of such a company are usually taken over at lesser than the fair market value, which might exceed the limit of INR 50,000 specified in the section. Abolition of DDT preferably for listed companies is necessary to get rid of multiplicity of taxes, giving the benefit of tax to investors in the low income bracket (where such income is taxed in the hands of the recipient). Here a partial difference can be made as against unlisted companies, since it is quite justifiable that abolition of DDT for unlisted companies would plausibly create an escape room and incentivise tax planning. Deduction under section 80JJAA is available for employment of new employees. One of the conditions for availing the deduction is that employee emoluments should not exceed INR 25,000 per month. An amendment is necessary for the said limit, which can at least be increased to INR 50,000 per month. Some steps towards revival of ailing sectors i.e. Real Estate, NBFC and Infrastructure can be expected.

The budget is expected to address decreasing demand, which is cited as one of the major causes of the slowdown. An expected move from the budget would be, bringing back 80CCG deduction (deduction in respect of investment made under equity saving scheme) which encouraged middle class individuals earning less than 12 lakh per annum to invest in listed shares and equity-oriented funds. This move would not only prove to be beneficial to individuals but would also give a push to the tired economy, since a large share of the population is in this category. An increase in deduction under section 80C from the existing INR 1.5 lakh seeks attention, as it has remained unchanged for a period of almost six years now, the last change made was in budget 2014. It is time to make amendments to the section, in order to drive its focus on channelising these funds into growth-oriented projects. These small changes might help accelerating growth which at present is dawdling, if not nil.

One backdrop that can be speculated is the reintroduction of Estate duty, which was levied on inheritance of property on death of the holder. In 1985, Estate duty law was abolished in India. However, in the recent past, there has been a buzz about reinforcement of the same. Budget 2020 could possibly pave the way for it.

Amidst the speculation and hustle and bustle, we can only wait patiently for the budget to be presented and hope for the best to come.

Authored by:

Santosh Maheshwari

(Partner / Transaction Tax)

BDO India

Assisted by,

Khyati Chauhan (Transaction Tax)