Income Tax 31 Jan,2020
Will Budget 2020 deliver India’s expectations?
Rakesh NangiaChairman, Nangia Andersen Consulting Pvt. Ltd.
Shailesh KumarPartner, Nangia & Co LLP

Modi 2.0 Government is set to present its full budget for FY 2020-21 on the 1st of February. 2020. With slowing Indian economy, political disturbances post CAA and very volatile global scenario, the Government undoubtedly has a mammoth task to meet expectations of various stakeholders and at the same time give boost to the Indian economy, keeping the fiscal deficit within permissible limits.

With recent corporate tax rate cut and frequent policy announcements made by the Finance Minister to give stimulus to the economy, the Government has set high expectations of the various sectors with a message that the Government is responsive and quick to take steps to improve the economic situation. The Government now has a massive task of keeping up to these expectations in the Budget proposals.

Last year, the Government introduced an exceptional Amnesty scheme in name of 'Sabka Vishwas' to settle disputes with taxpayers in Service Tax and Central Excise matters. Considering the huge pendency of tax disputes in Income tax matters and quantum of tax demand locked in these disputes, the Government should come up with a similar Amnesty scheme in Income tax cases as well.

Further, last year the Government significantly slashed the corporate income tax rates provided such companies do not avail any incentive/exemption. However, companies availing beneficial tax rate are not eligible to claim set-off of accumulated MAT credit. Considering huge amounts already paid by companies in form of MAT and having accumulated MAT credits in their books, it is expected that Government should allow beneficial tax rates even to the companies availing MAT credit.

Slashing of the corporate tax rates has also uplifted hopes of individual taxpayers, who are now hoping for similar benefits in the form of reduced tax rates. In line with recommendations of the taskforce for proposed Direct Tax Code (DTC), Budget 2020 is expected to scale-up tax slabs, in order to leave more disposable income in the hands of the individuals. This would not only enable them meet increased cost of living but will also stimulate consumer demand with higher spending.

By means of each Budget, the government tries to streamline and rectify implausible provisions of the law. A long-standing wish of the corporates is regarding the removal of the Dividend Distribution Tax (DDT), payable by a domestic company at effective rate of 20.56% after "grossing up" on already taxed profit. Moreover, investors in receipt of dividend above INR 10 Lakh are also required to pay 10% income tax. Companies thus look forward to being relieved from the burden of DDT and desire the replacement of the old regime wherein the dividend was taxed in the hands of shareholders itself. Alternatively, necessary provisions may be introduced, allowing credit of DDT against income tax on 'dividends' paid by shareholders.

In pursuance of the government's stated objective of "Ease of doing business", it is sought that the Income Computation and Declaration Standards (ICDS) be scrapped altogether. Introduction of ICDS has led to an increased compliance burden, with little visible benefits in tax collection.

Further, it is the responsibility of the government to provide a conducive tax environment to all the taxpayers and to eliminate administrative/practical difficulties relating to tax policies and procedures. One such policy requiring clarification is the recently launched e-assessment scheme. The Scheme appears to be restricted to certain cases notified by the CBDT and there is still confusion regarding its applicability on processes involved in assessment like reference to TPO/DRP, invocation of GAAR and re-assessment. It is also not clear as to how new/additional claims shall be made. Clarity on grey areas/ambiguities in the scheme must be provided. It should also be clarified, whether TP/DRP and GAAR proceedings shall be conducted face-to-face or faceless.

Corporates incur heavy costs in the areas of social responsibility (CSR) like education, health, sanitation, women empowerment, etc. This is a compulsory obligation requiring compliance under the Companies Act, 2013 and thus calls for tax deduction, which is currently not allowed. Providing suitable tax incentives in respect of such CSR costs would not only incentivize corporates to spend more but also help the government achieve the said goals.

The government, with its unconventional and intrepid methods has helped India emerge as a strong yet liberal nation with clear signs of progress. The Budget 2020 will surely be an enthralling one as expectations are running high and the stakeholders are hoping for friendly, straightforward and uncomplicated policies and procedures.