India: SKP's Direct Tax Wish List

Last Updated: 8 February 2017
Article by SKP  

Tax rates

  • The Corporate Tax Rate should be considerably reduced and brought in the range of 27% to 28%.
  • The rate of Minimum Alternate Tax (MAT) should be also reduced to 10%.
  • The basic exemption limit should be enhanced from INR 250,000 to INR 400,000. The tax slabs should be suitably revised upwards.
  • The rate of Dividend Distribution Tax (DDT) should be reduced to 10%. 

Ease of doing business

  • Income Computation and Disclosure Standards (ICDS) should be scrapped.
  • Taxpayer should be provided with an option to avail credit for TDS deducted either as per Form 26AS or according to the income being offered to tax.  Since the claim of TDS credit is mostly a case a timing difference, this option will significantly reduce the compliance burden on the taxpayer.
  • TDS deposited by the tax deductor should be treated as a running account, in a similar manner as Cenvat credit under indirect tax law. This will provide a significant relief to the person deducting tax by facilitating the use of TDS already deposited against future TDS liabilities and reduce the requirement of TDS refund and TDS mis-match procedures.
  • The specified margin percentages under Safe Harbour Rules should be suitably reduced. In particular, the margins for the ITeS sector should be reduced from the existing 20% to 18% of cost.
  • The requirement of maintaining transfer pricing documentation presently applies when international transactions exceed INR 10 million. The limit of INR 10 million should be increased to INR 50 million.
  • Given the magnitude of the information to be reported, the time limit provided for the Country-by-Country reporting under the transfer pricing regulations should be increased from 8 months to 12 months from the end of the relevant financial year. 

Providing a stable tax regime

  • It should be expressly clarified that surcharge and education cess will not be levied on tax rates provided by Double Taxation Avoidance Agreements (DTAA).
  • The effects of adoption of IND-AS on MAT calculation should be clarified.
  • Purchase of off-the-shelf computer software should be exempted from the purview of TDS.
  • Given that the Place of Effective Management (POEM) principles have been issued on 24 January 2017, POEM regulations should be deferred by one year and be made applicable from 1 April 2017. Also, suitable provisions should be made for providing tax credit in respect of tax paid overseas. An ambiguity in respect of residency may arise and hence, claiming foreign tax credit could be a challenge. This could result in double taxation. 
  • Foreign Portfolio Investors should be provided suitable relaxations from the taxability of capital gains arising under the indirect transfer provisions.
  • Appropriate monetary thresholds should be introduced regarding requirements for maintaining a Master File under the transfer pricing regulations.
  • Transfer pricing provisions should not apply to domestic transactions where the transacting parties are liable to pay taxes at the same rates.
  • The transfer pricing requirements under the income-tax law and Customs Law presently work at cross purposes. These regulations should be harmonised. 

Tax incentives

  • Tax incentives in the form of rebate should be offered for taxpayers making electronic payments
  • The tax holiday period for start-ups should be increased from 3 years to 10 years. 
  • Conversion of a company into Limited Liability Partnership is tax neutral if, inter alia, the turnover of the company in any of the last three years does not exceed INR 6 million. The limit of INR 6 million should be increased to INR 50 million. 

TDS related measures

  • The threshold for TDS deduction on different payments should be suitably enhanced.
  • The liability to deduct TDS should not be attracted on the provision for expenses created during the year, for Management Reporting purposes.
  • Interest on delayed deduction/deposit of TDS should be calculated on a daily basis instead of a monthly basis.
  • For payments made outside India, after deducting TDS, a mechanism should be provided for generating TDS certificates where the receiver does not have a PAN.
  • Stringent penalties should be introduced to deal with the failure to file TDS statements or filing grossly incorrect TDS statements to safeguard the interest of income-earners.

Personal taxation

  • A standard deduction should be re-introduced for salaried employees.  Alternatively, the exemption limits for allowances such as conveyance allowance, children education allowance, etc., should be suitably increased.
  • Deduction of interest on borrowed capital for self-occupied house property should be increased to INR 250,000 from the existing limit of INR 200,000.
  • The limit for deduction under section 80C should be increased to INR 200,000 from the existing limit of INR 150,000.
  • The exemption for Leave Travel Concession should be provided once a year, as against the current exemption of two visits in four calendar years.  The term 'calendar year' should be replaced by 'financial year'.
  • Employees' contribution to approved superannuation funds should be exempt from tax in line with the contribution to the provident fund.
  • The presumptive taxation scheme for professionals is presently applicable for cases where the gross receipts are up to INR 5 million. The limit of INR 5 million should be increased to INR 10 million. Similarly, the presumptive income of 50% in such cases should be reduced to 30%. 

Other aspects

  • Time limit for the disposal of appeals by the Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal and for passing orders giving effect to appellate orders.
  • A specific time limit should be introduced for obtaining lower/nil tax withholding certificates from the tax authorities. 
  • Foreign companies that do not have a bank account in India face difficulties in obtaining tax refunds. A mechanism to enable these companies to receive tax refunds in their overseas bank accounts should be introduced.
  • The threshold limit for applying for an Advance Ruling for resident taxpayers should be suitably reduced.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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