'Govt may announce tax breaks to priority sectors to spur investments’

Rakesh Nangia, Managing Partner, Nangia & Co LLP, in conversation with TNIE, talks about the likely changes in the direct tax rules in the current Budget.
Rakesh Nangia
Rakesh Nangia
Updated on
3 min read

The income tax law review is work in progress. What more could be done to simplify tax laws? 

Till the time the new income tax law sees the light of the day, the government should continue refining the existing law with an objective to simplify the same. There are lot of avenues where there is an urgent need for simplification under the existing Income tax laws. For example, currently, subject to certain threshold, TDS/TCS are applicable in case of sale of “any goods”, while the law does not prescribe definition of “goods” at the outset leading to unnecessary dispute which quite honestly can be avoided. Similarly, government should also consider reviewing the existing compliance regime (which in some cases quite literally becomes burdensome) to eliminate overlapping and unnecessary compliances.

From the corporate tax side, what are the top three demands?

There are three main areas where the industry and companies have raised their concerns. They broadly include the following:

(1) Formal and time-bound process to obtain stay of tax demand: Under the tax laws, payment of 20% of tax demand is generally mandatory if the taxpayer chooses to file an appeal with the CIT(A) and/or the ITAT against the order passed by the lower authorities. Once the 20% tax has been paid, the taxpayer has to approach the Tax Officer to obtain a stay of demand (for the balance 80% tax) till the time the higher authority passes its judgment on the case. Since the limit of 20% is fixed by the Central Board of Direct Taxes, it is mandatory for the tax officer to grant a stay of demand in such cases. However, with all the technological investments made by the government in tax administration, surprisingly obtaining a stay order is still a manual process where a physical application needs to be submitted to the tax officer along with necessary documents and proof of payment of tax. Further, there is no statutory timeline for the tax officer to pass a stay order. Till the time stay order is passed, the 80% tax demand continues to remain outstanding on the portal, thereby allowing the tax department to continue to collect the same by way of adjustment of refund of the taxpayer in future years. This causes severe liquidity and working capital constraints for the taxpayer. The government should establish an independent authority with PAN-India jurisdiction to ensure consistent implementation of CBDT’s instructions on granting stay of tax demands.

 (2) Addressing pending litigation: It can take you anywhere between 5-10 years (and perhaps more!) to get your tax cases resolved right from the first appellate authority to the Supreme Court. In fact, more than 50% (over 300,000 out of 550,000 cases) of the existing cases pending before the Commissioner (Appeals) who is the first appellate authority are pending for more than 24 months. For businesses, a lot of time and money gets devoted just to manage direct tax litigation. While the government has recently increased the monetary limit for departmental appeal before the ITAT to INR 60 lakhs, the government should instead take a radical approach of making order of the CIT(A) as non-appealable by the department considering that as per the Economic Survey of 2018, it was stated while the Income Tax Department is the biggest litigant, it loses approximately 70% of cases at higher forum.

(3) Support to MSME: Small and medium enterprises, which account for 98 per cent of manufacturing activities, require specific tax relief to thrive. For example: Lowering tax rates for MSMEs under a specified revenue threshold, Extending concessional tax rates to the manufacturing sector, Allowing all SMEs to adopt presumptive taxation for streamlined compliance and reduced bookkeeping requirements.

 What do you think could be done from the taxation side to spur private sector investments in India?

The government can announce tax breaks to identified priority sectors to spur investments. For example, a reduced corporate tax rate for specific sectors like manufacturing, renewable energy, technology, and infrastructure development to incentivize investment in those areas. Further, in order to encourage innovation, the government should announce tax deductions for research and development (R&D) expenses.

 What are the key asks regarding simplification in tax filings and tax forms?

Tax filings in India, by design, are often complicated and burdensome for business. A nuanced approach needs to be taken to simplify tax filings formalities such that the government is able to gather relevant information from the taxpayers while simultaneously not burdening the taxpayer with complex forms, technical jargons, rigid requirements.  

What could the Budget have in store for the common man? Are there any measures that could boost consumption?

 The purchasing power in real money terms have been under strain for some time. This coupled with high taxes has put a severe dent on the spending habits of a common man. Government can increase the income tax slab rates as well as give a one-time relief to middle income earners to ease pressure and consequently boost consumption.

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