Taxmann’s 35 Expectations from the Union Budget 2022

Taxmann’s

35 Expectations from the Union Budget 2022

By Taxmann’s Editorial Team Taxmann’s 35 Expectations from the Union Budget 2022

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Taxmann’s

35 Expectations from the Union Budget 2022

By Taxmann’s Editorial Team

Taxmann’s 35 Expectations from the Union Budget 2022

2

Taxmann’s 35 Expectations from the Union Budget 2022

3

Taxmann’s

35 Expectations from the Union Budget 2022

By Taxmann’s Editorial Team

Taxmann’s 35 Expectations from the Union Budget 2022

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The countdown for the Union Budget 2022 begins.

If the pandemic does not force Delhi to go for another lockdown, the Finance Minister, Smt. Nirmala Sitharaman, will present her fourth Budget on 01-02-2022.

If lockdown happens, there could be two possibilities: the Budget’s date is postponed or presented virtually. In either situation, it would be the first time in the history of its kind.

There is a third situation as well. Delhi sees the peak by 3rd week of January and the Parliament functions normally for the Budget Session.

Last year the Govt. had announced multiple stimulus packages to rejuvenate the economy impacted by the COVID pandemic. The Govt. followed the counter-cyclical fiscal policy to stabilise the business cycle. This policy requires Government to reduce spending/increase taxes in good times and increase spending/reduce taxes in bad times.

To a large extent, these policies helped the Indian economy to recover from the recession. Typical economic recoveries happen in V, W, Z, U and L shapes. However, economists are starting to think the recovery from COVID-19 might be K-shaped. As technology and large capital firms have recovered faster than small businesses and industries directly affected by COVID-19, such as hospitality.

Though these stimulus packages have given a pace to the recovery, it also resulted in a higher inflation rate. Thus, the US Federal Reserve meeting minutes signalled the central bank might raise interest rates sooner than expected. This is a signal that the Indian Government might also think about lessening the liquidity from the market.

Could this be the theme of the upcoming Budget?

Three-pointer Theme.

1. Relief to industries struggling to recover.

2. Levy COVID cess on industries that bounced back.

3. Reduce liquidity by increasing the investment-linked deductions.

Every year, we release a document that includes our recommendation and expectations from the Union Budget. This year also, we have prepared a list of our apprehensions and recommendations for the upcoming Budget. We don’t focus on our demands from the Govt. for Industries but highlight the asymmetry and conflict between different provisions that should be plugged to bring clarity in the law. At Taxmann, we believe that our responsibility is to highlight the gaps in the law and work as a bridge between the revenue, taxpayer, and tax professionals.

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Here is a list of our recommendations and expectations for Union Budget 2022-23.

1.

Tax Relief for COVID Patients and their Families

2.

Taxability of Cryptocurrencies

3.

Change in Re-assessment Provisions

4.

Stay granted by ITAT should not be vacated automatically after the expiry of 365 days

5.

Exemption to be given on transfer of shares in the scheme of amalgamation, which is held as stock-in-trade

6.

Concessional Tax Regimes for Firm/LLPs

7.

A deduction should be allowed for the ‘Maintenance Charges’ while computing income from let-out property

8.

Section 153 should be amended to include Principal Chief Commissioner or Chief Commissioner in line with Sections 263 and 264

9.

Define ‘Seller’ for TDS under Section 194Q

10.

Taxability of dividend income under the head profits and gains from business or profession

11.

Provisions of Section 80DD must be Rationalised

12. Need for an enabling provision to deduct tax under Section 194N as cash withdrawn is not an income 13.

Section 54B exemption should be allowed even if the new agricultural land is purchased before the sale of agricultural land Taxmann’s 35 Expectations from the Union Budget 2022

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14.

Tax deducted in the foreign country to be treated as income of the assessee

15. Long-term capital gain referred to in Section 112A should be taxed at 10% instead of MMR in the hands of business trust 16.

Definition of SPV under Income-tax Act should be same as defined under SEBI’s regulations on REITs and InVITs

17.

Clarification required for pass-through of losses incurred by Business trust and Securitisation trust

18.

Section 36(iva) should be amended to include the impact of the amendment made under Section 80CCD in respect of Central Government contribution up to 14%

19.

Consequential amendment needed in the Proviso to Section 206C(5) due to omission of Section 203AA

20.

Start-ups may be penalised for not fulfilling conditions under Section 80-IAC

21.

Capital gain provisions should not contain the reference of any particular year in respect of sovereign gold bonds scheme

22.

Enhance the scope to apply for a lower tax collection certificate

23. Prosecution under Section 276BB should be non-cognisable under Section 279A on the lines of Section 276B 24.

Full exemption should not be denied to the trust on violation of Section 13

25.

Condition to pay emoluments by specified modes under section 80JJAA should be applicable in case of new businesses also

26.

Seller for the purpose of TCS under Section 206C(1F) should include Individual or HUF

27.

Audit might be necessary for claiming Exemption under Section 80-IBA

28.

Deduction of Tax on Dividend paid by any mode other than cash

29.

Enhance the Scope of not being an Assessee-in-default

30.

Higher Rate of Interest for Non-deposit of TCS Amount

31.

No Section 44AD Benefit for Speculative Business

32. Allow payment of advance tax in a single instalment in case Section 44AE presumptive scheme is opted 33.

Time-limit may be specified for passing an order in case of default in deduction of tax from the payment made to non-resident

34. Taxability of Capital Gains in case of a JDA entered into by assessees other than an Individual or HUF 35.

Meaning of the Term ‘Month’ and Computation Thereof

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1.

Tax Relief for COVID Patients and their Families Looking at the devastating impact of COVID-19, the Central Government, State Governments, employers, friends, and philanthropists are providing financial assistance to the infected people and their families. Still, many people in the country are not getting any financial support and are fighting on their own. These people should get a tax deduction in respect of the amount they incur on covid treatment.

The Govt. should consider giving tax reliefs for such financial assistance and provide deductions for the expenses on medical treatment.

The Government had issued a Press Release, dated 25-06-2021 providing that taxpayers receiving financial help from their employers and well-wishers for meeting the expenses incurred on treatment of Covid-19 would get an income tax exemption.

Thus, any amount received from the employer or any other person for treatment of Covid-19 would be tax-free.

Further, if a taxpayer dies due to COVID, then any financial assistance received by his family member shall be exempt without any limit where the financial assistance is received from the employer of the deceased. However, where the financial assistance is received from any other person, the exemption amount shall be limited to Rs. 10 lakh in aggregate.

It was mentioned in the Press Release that the necessary legislative amendments shall be made in this regard in due course. However, no amendment has been made yet. Thus, the Government may bring the requisite amendments in the upcoming Budget.

Currently, Section 80D of the Income-tax Act allows deduction of up to Rs. 50,000 from gross total income in respect of any expenditure incurred on the medical treatment of a senior citizen (60 years or above) provided he is not covered under health insurance. Thus, the deduction for the medical expenditure is deductible when two conditions are satisfied. First, the person for whom the expenditure is incurred should be a senior citizen, and second, no medical insurance policy has been taken for such person. It is recommended that the scope of Section 80D should be expanded to every person (irrespective of age) to allow a deduction for expenditure incurred on medical treatment of Covid-19 for himself or a family member.

2.

Taxability of Cryptocurrencies As per the recent study by Nasscom and WazirX, India’s cryptocurrency market has seen exponential growth over the past few years. It is expected that the investment

by Indians in Cryptocurrency could touch $241 million by 2030. Currently, India has the highest number of crypto owners globally, at 10.07 crores.

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A bill was expected to be presented during the Winter Session of Parliament to regulate Cryptocurrencies. However, it was not introduced, and it is now expected that the Govt. may take up this bill in the Budget Session. If Govt. does not prohibit Indians from dealing in Cryptocurrencies, we expect that the Govt. could introduce a regressive tax regime for Cryptocurrencies.

Considering the size of the market, the amount involved, and the risk coupled with Cryptocurrencies, we expect that the following changes may be brought in the taxation of Cryptocurrencies: 2.1. TDS/TCS provisions Both sale and purchase of Cryptocurrencies above the threshold limit should be brought within the ambit of TDS/TCS provisions. This will help the Govt. to get the footprints of the investors.

2.2. Reporting in SFT Both sale and purchase of Cryptocurrencies should be brought within the ambit of reporting in the Statement of Financial Transactions. The trading companies already do similar reporting of sale and purchase of shares and units of mutual funds.

2.3. Higher tax rate Similar to winnings from Lottery, Game Shows, Puzzle, etc., a higher tax rate of 30% should be levied on the income arising from the sale of Cryptocurrency.

2.4. Loss can’t be set off The losses from the sale of Cryptocurrency should not be allowed to be adjusted from other income and should also not be allowed to be carried forward.

3.

Change in Re-assessment Provisions The Finance Act 2021 introduced a paradigm shift in the fundamentals on which the entire scheme of re-assessment is based. It substituted Sections 147, 148, 149 and 151 and inserted a new section 148A, making a complete change in the assessment proceedings relating to an income escaping assessment and search-related cases.

The new scheme of re-assessment inter-alia reduces the time limit for reopening the assessment from 6 years to 3 years. If the Assessing Officer has evidence in his possession, which reveals that the income escaping assessment, represented in the form of asset, amounts to Rs. 50 lakhs or more, the notice can be issued up to 10 years.

Further, the new scheme also specifies that before issuing a notice under Section 148, the Assessing Officer shall conduct enquiries, if required, and provide an opportunity of being heard to the assessee. After considering his reply, the Assessing Officer shall

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decide, after passing an order, whether it is a fit case for the issue of notice under Section 148 and serve a copy of such order along with such notice on the assessee.

The new provisions of re-assessment were made effective from 01-04-2021.

Therefore, the notices issued on or after 01-04-2021 under Section 148 must adhere to the new re-assessment provisions. However, the CBDT, exercising the powers conferred under Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 vide Notification No. 20/2021, dated 313-2021, extended the timelines for issuing notice under the old provisions of Section 148 to 30-04-2021. The date was again extended to 30-06-2021 vide Notification No. 38 /2021, dated 27-4-2021.

The assessees challenged the re-assessment notices issued during the extended time on the grounds of whether the CBDT has authority to issue such notifications extending the timelines where the provisions have already been substituted by the Finance Act 2021 with effect from 01-04-2021. It would be incorrect to look at the delegation legislation (Notifications) issued under the TLA Act, 2020 to interpret the principal legislation made by Parliament. A delegated legislation can never overreach any Act of the principal legislature. The delegated authority cannot override the Act by exceeding the authority or making provisions inconsistent with the Act. Various High Courts have also pronounced judgments on this aspect as under: 3.1. In favour of assessee (a) Ashok Kumar Agarwal v. Union of India [2021] 131 taxmann.com 22 (Allahabad) (b) Mon Mohan Kohli v. Assistant Commissioner of Income-tax [2021] 133 taxmann. com 166 (Delhi) (c) Bpip Infra (P.) Ltd. v. Income Tax Officer, Ward 4(1), Jaipur [2021] 133 taxmann. com 48 (Rajasthan) 3.2. In favour of revenue In the various cases, the Hon’ble Chhattisgarh high court did not interfere with the notices issued under Section 148 up to 30-6-2021. It was held that though new section 148A was inserted w.e.f. 1-4-2021 stipulating condition of giving the opportunity of hearing to assessee prior to issuing re-assessment notice, in view of COVID pandemic and prevailing lockdown all over India, old provisions of section 148 was extended up till 30-6-2021; re-assessment notice issued up to 30-6-2021 without following procedure inserted vide new section 148A would be valid. In the following cases, the Chattisgarh High Court has held in the favour of revenue: (a) Palak Khatuja v. Union of India [2021] 130 taxmann.com 44 (Chhattisgarh) (b) Ashok Kumar Agrawal v. Union of India [2021] 133 taxmann.com 14 (Chhattisgarh) (c) Anant Rice Industries v. Union of India [2021] 130 taxmann.com 132 (Chhattisgarh) (d) Prashant Sharma v. Union of India [2021] 131 taxmann.com 78 (Chhattisgarh) Taxmann’s 35 Expectations from the Union Budget 2022

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(e) Guruteg Bahadur Rice Mill A Partnership Firm v. Assistant Commissioner of Incometax, Central Circle-1(1), Chhattisgarh [2021] 130 taxmann.com 154 (Chhattisgarh) (f) Shri Labtund Infrastructure (P.) Ltd. v. Principal Commissioner of Income-tax [2021] 133 taxmann.com 116 (Chhattisgarh) 3.3. Expectations Except for the Chattisgarh high court, the various high courts quashed the notices issued under old Section 148. Since it is settled law, the law prevailing on the date of issuance of the notice under Section 148 has to be applied. If the legislature had intended to keep the erstwhile provisions alive, it would have introduced the new provisions with effect from 01-07-2021, which has not been done. Alone in the Delhi High Court, there were 1,346 writ petitions on this matter wherein the relief was provided by quashing the re-assessment notices issued under the old provision.

Thus, it is expected that in the upcoming Union Budget 2022, the necessary curative amendments may be introduced to make these notices legally valid. It would give a right to the revenue to reopen the assessment within an extended time-period.

(Read more: Income Escaping Assessment on Taxmann.com/Practice)

4.

Stay granted by ITAT should not be vacated automatically after the expiry of 365 days Section 254(2A) of the Income-tax Act contains provisions for the disposal of appeal by the Tribunal. The first proviso to Section 254(2A) provides that if an assessee makes an application for stay of proceedings, the Tribunal may, after considering the merits of the application, pass an order of stay for a period not exceeding 180 days from the date of the order. The Tribunal shall dispose of the proceedings within that period of stay.

Where the Tribunal does not dispose of the appeal within the original period of stay, and the delay is not attributable to the assessee, the Tribunal may extend the period of stay for a total period of 365 days (365 days including 180 days granted previously).

Further, the third proviso to Section 254(2A) provides that if the Tribunal does not dispose of the appeal within the period allowed (original plus extended), the order of stay shall stand vacated after the expiry of 365 days even if the delay in disposing of the appeal is not attributable to the assessee.

In the case of Dy. CIT v. Pepsi Foods Ltd. [2021] 126 taxmann.com 69 (SC), the Supreme Court has held that the object of the third proviso to Section 254(2A) (i.e., automatic vacation of stay on completion of 365 days even if the assessee is not responsible for the delay) is discriminatory and is liable to be struck down as it violates Article Taxmann’s 35 Expectations from the Union Budget 2022

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14 of the Constitution of India. The Apex Court further held that the third proviso shall be read without the word “even” and “is not”. Thus, any order of stay shall stand vacated after the expiry of the mentioned period only if the delay in disposing of the appeal is attributable to the assessee. After these words are struck down, the third proviso shall be read as under: Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty-five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee.

Thus, it is expected that the Govt. may bring an amendment in the third proviso to Section 254(2A) as held by the Hon’ble Supreme Court in the above case.

(Read more: Appeal before Income Tax Appellate Tribunal (ITAT) on Taxmann.com/ Practice)

5.

Exemption to be given on transfer of shares in the scheme of amalgamation, which is held as stock-in-trade As per Section 47(vii), any transfer of a capital asset, being shares held by a shareholder in the amalgamating company (transferor), under a scheme of amalgamation is not regarded as transfer provided the specified condition are satisfied. Thus, no tax implication arises in the hands of the shareholder at the time of allotment of shares of the amalgamated company (transferee) in lieu of shares held as a capital asset in the amalgamating company (transferor).

The above exemption is available only when the shareholders hold the shares as a capital asset. If such shares are held as stock-in-trade, no exemption is provided, and profits and gains arising from the transfer of shares will be chargeable to tax under head ‘profits and gains from business and profession’.

This differential tax treatment purely based on the nature of investment made by the shareholders is arbitrary. Thus, it is recommended that Govt. should bring parity and amend Section 47(vii) to extend the benefit of exemption to shares that are held as stock-in-trade.

(Read more: Transfer of capital asset as a result of business restructuring on Taxmann. com/Practice)

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6.

Concessional Tax Regimes for Firm/LLPs The Government has introduced concessional and alternative tax regimes for domestic companies, individuals, HUF and co-operative societies. However, partnership firms and LLPs are still taxable at a flat rate of 30%. It is recommended that Govt. introduce corresponding concessional tax regimes for the firms and LLPs.

7.

A deduction should be allowed for the ‘Maintenance Charges’ while computing income from let-out property Maintenance Charges are mandatory charges paid by the owner of a flat/house to the housing society for the upkeep and maintenance of the common area. These charges are not deductible under Section 23 while computing the income from house property. The proviso to Section 23(1) provides for deduction of only taxes paid to the local authority. The Mumbai Tribunal in the case of Rockcastle Property (P.) Ltd. v. ITO [2021] 127 taxmann.com 381 (Mumbai - Trib.) has affirmed that ‘society maintenance charges’ paid by the assessee, by no stretch of the imagination, could be held to be taxes paid to the local authority. Hence, it couldn’t be allowed as a deduction while computing income from house property.

As maintenance charges are compulsory in nature and are paid on a monthly or quarterly basis, it is recommended that Govt. should allow its deduction while computing the income from let-out and deemed let out house properties.

(Read more: Computation of income from house property on Taxmann.com/Practice)

8.

Section 153 should be amended to include Principal Chief Commissioner or Chief Commissioner in line with Sections 263 and 264 The revisionary powers under Section 263 and Section 264 have been extended to the Principal Chief Commissioner and Chief Commissioner. However, reference for Principal Chief Commissioner or Chief Commissioner is still missing in clause (c) of Explanation 1 to Section 263(1). Similarly, in Section 153, the reference of Principal Chief Commissioner or Chief Commissioner is missing for the orders passed under Section 263 and 264.

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Therefore, it is recommended that the consequential amendments shall also be made in Section 153 w.r.t. reference of orders passed under Section 263, Section 264 and clause (c) of Explanation 1 to Section 263(1).

(Read more: Revision of orders prejudicial to revenue and Revision in favour of assessee on Taxmann.com/Practice)

9.

Define ‘Seller’ for TDS under Section 194Q The Finance Act, 2020 and Finance Act, 2021 had inserted Section 206C(1H) and Section 194Q under the Income-tax Act, respectively. These provisions require the collection or deduction of tax on the sale or purchase of goods, as the case may be.

Section 206C(1H) imposes an obligation on the seller to collect tax from the buyer of goods, and Section 194Q requires a buyer to deduct tax from the sum paid or payable to the seller of goods. As both the sections apply to one transaction (sale and purchase of goods), a transaction might be covered under both provisions in some situations. Where it does, the buyer shall have the first obligation to deduct the tax. In other words, the seller will not have any obligation to collect tax under Section 206C(1H) in such a scenario.

A transaction always involves two parties - seller and buyer. Thus, it is imperative to define the meaning of the ‘seller’ and ‘buyer’ in both sections. Section 206C(1H) defines both ‘seller’ and ‘buyer’. However, Section 194Q defines the meaning of ‘buyer’ only. With regard to the seller, it is provided that the seller can be any person resident in India, but its meaning has not been defined explicitly.

Further, the Government can exclude any person from such definitions. For instance, the Central Government or the State Governments are not treated as buyers. Thus, a seller shall not be liable to collect tax where the goods are sold to the Central Government or the State Governments. Hence, there will be no cash inflow in the hands of the Central Government on account of TCS. However, in the inverse situation under Section 194Q, where the Central Government or State Governments are the sellers of goods, the buyer would deduct tax from the sum paid or payable to the Government because Section 194Q applies to selling goods to any person resident in India without any exception. Thus, in this case, the Central Government or State Government, being a seller, would receive sale proceeds net of TDS. Considering the ambiguity, the CBDT issued Circular No. 20, dated 25-11-2021, to clarify that the Central Government or the State Government will not be considered a ‘seller’ for tax deduction under Section 194Q. It is recommended that the Government should amend Section 194Q to provide the meaning of ‘seller’ in the provision itself.

(Read more: TDS on Purchase of Goods on Taxmann.com/Practice) Taxmann’s 35 Expectations from the Union Budget 2022

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10.

Taxability of dividend income under the head profits and gains from business or profession With effect from Assessment Year 2021-22, the Finance Act, 2020 has abolished the dividend distribution tax (DDT) and moved to the classical system of taxation of dividend. Thus, a domestic company shall not liable to pay DDT on the dividend declared, distributed or paid on or after 01-04-2020 and, consequently, such dividend shall be taxable in the hands of shareholders. As dividend is now taxable in the hands of shareholders, the timeless controversy of its taxability under the relevant head of income would come to the fore again.

In the Income-tax Act, there are five heads of income - Salary, House Property, Business or Profession, Capital Gain and Other Sources. Income from other sources is a residuary head of income and sweeps in all taxable incomes which fall outside the other four heads of income. The provisions relating to the taxability of residuary income are contained in Section 56. The relevant provisions read as under: “Income from other sources 56. (1)Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely:— (i) dividends; (ia)…………………………..; (ib)…………………………..; (ic)…………………………..; (id) income by way of interest on securities, if the income is not chargeable to incometax under the head “Profits and gains of business or profession”; (ii) to (xi)……………………………….”

Clauses (i) to (xi) of Section 56(2) provide for chargeability of various incomes under the head of other sources. Clause (i) explicitly specifies that dividend shall be taxed under the head’ income from other sources’. However, for several other items of income specified in Clauses (ia) to (xi), the provision is qualified by the phrase ‘if such income is not chargeable to income-tax under the head’ Profits and gains of business or profession’. For instance, as per clause (id), interest on securities is chargeable to tax under the head other sources only when it is not chargeable to income-tax under the head “Profits and gains of business or profession”. The exclusion of the Taxmann’s 35 Expectations from the Union Budget 2022

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said phrase from clause (i) suggests that the dividend income can never be taxed as a business income and must always be taxed under the head’ income from other sources’.

However, the taxability of dividend income under the head’ business or profession’ when it is connected to the business carried on by assessee (for example, dividend received in respect of shares held as stock-in-trade) has always been a matter of turf war.

The Delhi High Court in the case of CIT v. Excellent Commercial Enterprises & Investments Ltd. [2005] 147 Taxman 558 (Delhi) held that where shares are held by the assessee as a stock-in-trade, then it could not be said that the dividend income would fall as an income from other sources as contemplated under section 56. The Supreme Court in the case of Brooke Bond & Co. Ltd. v. CIT [1986] 28 Taxman 426 (SC) held that the nature of the dividend income must be determined having regard to the true nature and character of the income.

It is recommended that the alike other clauses, dividend income should be taxable under the head’ income from other sources’ if it is not chargeable to income-tax under the head ‘Profits and gains of business or profession’. Section 56(2)(i) should be read as under: (2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :— (i) dividends [, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession”]; (Read more: Taxation of Dividend on Taxmann.com/Practice)

11.

Provisions of Section 80DD must be Rationalised Section 80DD allows a deduction to a resident individual or HUF who has incurred any expenditure for treatment of a dependent person with a disability. The deduction is also allowed for the amount paid or deposited in a scheme of LIC or another insurer for maintenance of such a dependent person. However, the following two conditions have to be satisfied to claim the deduction: (a) The scheme must provide for payment of the annuity or lump sum amount for the benefit of a dependant only in the event of the death of such resident individual or member of HUF; and (b) Assessee nominates either the dependant or any other person or a trust to receive the payment on his behalf for the benefit of the dependant.

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These conditions are harsh and illogical as a person cannot get the lump sum or annuity amount of insurance policy till he is alive. Even if he has paid all premiums and needs the money for the benefit of a dependent person, he cannot get the maturity amount.

The Apex Court in the case of Ravi Agrawal v. Union of India [2019] 101 taxmann.com 70 (SC) had requested the Govt. to make suitable amendments to Section 80DD so that maturity sum in Jeevan Aadhar Policy floated by LIC under Section 80DD is disbursed for the benefit of disabled person even before the death of assured parent/guardian.

Section 80DD also lacks other aspects which have been discussed below: It prescribes the meaning of ‘disability’ as contained in the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. This Act has been repealed. The new law the Rights of Persons with Disabilities Act, 2016 covers more disability types; (a) Non-resident persons are not allowed to claim Section 80DD deduction; (b) If dependent dies before the policy-holder, the whole amount received is fully taxable It is highly recommended that Govt. must streamline the provisions of section 80DD. (Read more: Deduction for medical treatment of person with disability on Taxmann. com/Practice)

12.

Need for an enabling provision to deduct tax under Section 194N as cash withdrawn is not an income Section 194N was introduced by the Finance (No. 2) Act, 2019, which was subsequently substituted with a new provision by the Finance Act, 2020. This provision requires deduction of tax at source from the cash withdrawn by a person from his account maintained with a bank, co-operative bank or a post office.

Section 194N is covered under Chapter XVII which relates to the collection and recovery of tax. Section 4 and Section 190 contain the enabling provisions for deduction and recovery of tax.

Section 4(1) provides that income-tax shall be levied in respect of total income of the relevant year. Section 4(2) provides that in respect of income chargeable under subsection (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. Section 190 relates to the deduction/collection of tax and payment of advance tax.

Sub-section (1) of the said section provides that:

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“Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment or by payment under sub-section (1A) of section 192, as the case may be, in accordance with the provisions of this Chapter.”

This provision explicitly provides that the collection and deduction of tax shall be made in respect of the income of the assessee. If the amount received could not be categorised as income in the hands of the receiver on which tax is leviable, no tax can be deducted/collected at source.

TDS on cash withdrawal was introduced to promote a cash-less economy and discourage payments in cash. Section 194N requires deduction of tax from the amount withdrawn from the accounts. However, it contradicts with provisions of Section 4 and Section 190. There is no income component in cash withdrawn from a bank account, thus, the question of TDS should not arise.

The Supreme Court has affirmed this proposition in the case of CIT v. Eli Lilly & Co. (India) (P.) Ltd. [2009] 178 Taxman 505 (SC) that if a particular income falls outside section 4(1) then TDS provisions cannot come in. The Madras High Court in the case of Tirunelveli District Central Co-operative Bank Ltd. v. JCIT [2020] 119 taxmann.com 21 (Madras) has also held that tax cannot be deducted under Section 194N if cash withdrawn is not an income of the account holder.

Thus, it is expected that Govt. may bring a suitable amendment under the law to end any possible litigation on this provision.

(Read more: TDS on cash withdrawals on Taxmann.com/Practice)

13.

Section 54B exemption should be allowed even if the new agricultural land is purchased before the sale of agricultural land Section 54B provides an exemption to an Individual or HUF from the capital gains arising from the transfer of agricultural land. The exemption is allowed if capital gains are invested in a new agricultural land within the prescribed time limit.

The provisions of Section 54B provide relief when the capital gain arising from the transfer of agricultural land is invested in another agricultural land within two years after the date of transfer. Sections 54 and 54F also allow capital gain exemption if the assessee purchases a residential house either within one year before the date of the transfer or within two years after the date of transfer of the original asset.

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Unlike Section 54/54F, Section 54B does not allow the capital gain exemption if the assessee purchases agricultural land before the date of transfer of old agricultural land. It is recommended that the deduction under Section 54B should be allowed even if the assessee purchases the new agricultural land before the sale of the original agricultural land.

(Read more: Capital gain exemption under Section 54B on Taxmann.com/Practice)

14.

Tax deducted in the foreign country to be treated as income of the assessee Section 198 of the Income-tax Act, 1961 provides that the tax deducted at source should be included in the gross total income of the assessee. The bare provision of Section 198(1) is reproduced below: ‘All sums deducted in accordance with the foregoing provisions of this Chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received’ Section 198 is covered under Chapter XVII of the Income-tax Act, which includes deduction/collection of taxes under Sections 192 to 206C. Thus, any tax deducted or collected under the Income-tax Act shall be deemed as income of the assessee and accordingly, it is added to the gross total income of the assessee.

However, the computation of income is often disputed if taxes have been withheld outside India and the corresponding income is offered to tax in India. In the absence of an explicit provision in this regard, the assessee includes the net income (i.e., amount so remitted to India after withholding of taxes) to his gross total income. In contrast, the Assessing Officer assesses the gross amount.

This conflict arises due to the absence of a reference in Section 198 of taxes withheld outside India. Section 198 provides a deeming fiction with respect to the taxes deducted or collected as per the provisions of the Income-tax Act, 1961 and does not include taxes withheld outside India.

As the taxes paid outside India are eligible for the foreign tax credit under Section 90/90A read with Rule 128, it is apprehended that the amendments may be made to Section 198 to bring the income earned outside India at par with the income earned in India.

(Read more: Foreign Tax Credit (FTC) on Taxmann.com/Practice)

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15.

Long-term capital gain referred to in Section 112A should be taxed at 10% instead of MMR in the hands of business trust A business trust (REIT or InVIT) is governed by Section 115UA read with Section 10(23FC), 10(23FCA) and Section 10(23FD) of the Income-tax Act. A business trust is structured as a hybrid pass-through entity, allowing it to pass certain income to its unit-holders. Consequently, such incomes are exempt at the level of business trust and taxable in the hands of the unit-holders.

The incomes which a business trust is allowed to pass through to its unit holders are as follows: (a)

Dividend received from SPV;

(b) Interest received from SPV; and (c)

Rental income from real estate properties directly owned by REITs.

The pass-through status is provided to the business trust only in respect of the aforesaid incomes, and all other incomes are chargeable to tax in the hands of the business trust. Such other income is taxable under Section 115UA at a maximum marginal rate (i.e., 42.744%) except the capital gains covered under Section 111A and Section 112. Section 111A provides for a concessional tax rate of 15% in respect of short-term capital gain arising from the transfer of listed equity shares, equityoriented mutual funds or units of a business trust. Whereas Section 112 provides for a concessional tax rate of 20% in case of long-term capital gain.

The Finance Act, 2018, inserted a new Section 112A in the Income-tax Act to tax the income arising from the transfer of a long term capital asset, being a listed equity share or a unit of an equity oriented fund or a unit of a business trust at the rate of 10% on the amount of capital gain in excess of Rs. 100,000. However, no consequential amendment was made under Section 115UA. Thus, it is recommended that the capital gains covered under Section 112A should be charged to tax at the rate of 10% and not at MMR in the hands of business trust.

(Read more: Tax on long-term capital gain from sale of securities chargeable to STT on Taxmann.com/Practice)

16.

Definition of SPV under Income-tax Act should be same as defined under SEBI’s regulations on REITs and InVITs To boost investment in Real Estate and Infrastructure sectors, the Government introduced the concept of Real Estate Investment Trusts (REITs) and Infrastructure Investment trusts (InVITs).

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REITs or InVITs are regulated by SEBI through SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014, respectively. The structure of REITs or INVITs is similar to that of a mutual fund wherein money is collected from the general public for investing on their behalf in income-generating real estate properties or infrastructure projects. REITs or InVITs invest in real estate properties or infrastructure projects, respectively, either directly or through Special Purpose Vehicle (SPV). Under SEBI (Real Estate Investment Trusts) Regulations, 2014, SPV is defined to mean a company or LLP in which REIT holds at least 50% of the equity share capital or interest. Whereas, under SEBI (Infrastructure Investment Trusts) Regulations, 2014, SPV is defined to mean a company or LLP in which InVIT holds the controlling interest and at least 51% of the equity share capital or interest. Further, under both the regulations, SPV has to meet certain other conditions pertaining to investment and nature of activities.

As far as tax implication of investing in REITs or InVITs is concerned, they are given pass-through status under the Income-tax Act whereby they are allowed to pass certain income, inter-alia, interest, rent and dividend received from SPV to their unit holders without paying the income-tax at their end. However, under Income-tax Act, SPV is defined to mean an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which such trust is granted registration.

Definition of SPV as provided under the Income-tax Act is to some extent is different from the definition as provided under aforesaid SEBI Regulations. The two basic differences in the definition of an SPV are as follows: (a)

As per SEBI Regulations, SPV can be an Indian company or LLP. However, the Income-tax Act recognises only an Indian company as SPV. Thus, if an SPV is incorporated as LLP then pass-through status shall not be available to business trust in respect of income received from such SPV; and

(b) As per SEBI Regulations, REIT is not required to have a controlling interest in SPV. However, as per Income-tax Act, REIT should have the controlling interest and at least 50% equity shareholding in SPV. Considering these differences in the definition of SPV under the Income-tax Act visà-vis SEBI Regulations, it is recommended to amend the definition of SPV under Income-tax Act to align it with the definition as provided under SEBI regulations.

(Read more: Taxation of REIT/InVIT on Taxmann.com/Practice)

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17.

Clarification required for pass-through of losses incurred by Business trust and Securitisation trust The tax is eliminated at the pool level and levied at the investor level in a passthrough regime. In other words, income earned by an entity is exempt from tax in its hands, and the same is taxable in the hands of its investor or unitholders in the same manner and to the same extent as if the investment in underlying assets has been made directly by the investors.

In the Income-tax Act, three types of entities, namely Category I & Category II AIFs, Securitisation Trust and Business Trust, are accorded a pass-through status.

Securitisation Trusts enjoy the pass-through status for entire income, whereas others are provided with this status in respect of certain specified income only.

Income-tax Act contains provisions for the pass-through of income. However, there is no guidance on the treatment of losses incurred by them. The Finance (No. 2) Act, 2019, has amended Section 115UB to allow carry forward of losses, other than the losses under the head “Profits and gains of business or profession” at the investor level in case of Category I and II AIFs. Memorandum explaining the Finance (No.2) Bill, 2019, has explained the reasons behind such amendment as follows: “Pass-through of losses are not provided under the existing regime and are retained at AIF level to be carried forward and set off in accordance with Chapter VI. In order to remove the genuine difficulty faced by Category I and II AIFs, it is proposed to amend section 115UB to provide that………”

However, no similar amendment has been made in respect of the Securitisation Trust and Business Trust.

Thus, it is recommended that Section 115UA and Section 115TCA should be amended to bring clarifications in this regard.

(Read more: Pass Through Income on Taxmann.com/Practice)

18.

Section 36(iva) should be amended to include the impact of the amendment made under Section 80CCD in respect of Central Government contribution up to 14% Section 80CCD was amended by the Finance (No. 2) Act, 2019 to provide that the Central Government employees shall be allowed a deduction for the amount deposited in the NPS in respect of contribution made by the employer to the extent of 14% of salary in the previous year. Post amendment maximum admissible deduction in case of an employee would be as under:

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(a)

14% of salary, if the contribution is made by the Central Government.

(b) 10% of salary, if the contribution is made by any other employer.

To allow deduction of such contribution, Section 36(iva) provides that deduction shall be allowed to the employer with respect to the contribution made by the employer towards NPS to the extent it does not exceed 10% of the salary of the employee.

Since the contribution of Central Govt. towards NPS has increased from 10% to 14%, the consequential changes should be made in Section 36 to bring harmony between both the sections.

(Read more: Deduction for contribution to pension scheme on Taxmann.com/Practice)

19.

Consequential amendment needed in the Proviso to Section 206C(5) due to omission of Section 203AA The Proviso to Section 206C(5) provides that the Director-General of Income-tax (Systems)/NSDL or the person authorised by it shall prepare and deliver to the buyer referred to in Section 206C(1) or to the licensee or lessee referred to in Section 206C(1C), a statement specifying the amount of tax collected and other prescribed particulars. Section 203AA read with Rule 31AB provides that such a statement is required to be furnished in Form No. 26AS by the 31st July following the financial year during which taxes are collected.

The Finance Act, 2020, has omitted Section 203AA with effect from 01-06-2020, and a new section 285BB has been introduced from the same date. Consequently, the CBDT omitted Rule 31AB. A new Rule 114-I has been inserted to provide that the Principal Director General of Income-tax (Systems) or the Director-General of Incometax (Systems) or any person authorised him shall upload such annual information statement in Form No. 26AS in the registered account of the assessee.

As Section 203AA has been omitted, corresponding omissions must be made in the provisions of TCS as well. Thus, it is recommended that the Government should make consequential amendments by omitting Proviso to Section 206C(5).

(Read more: Annual Information Statement (AIS) on Taxmann.com/Practice)

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20.

Start-ups may be penalised for not fulfilling conditions under Section 80-IAC Income-tax Act contains provisions to allow various exemptions and deductions to the start-ups. Section 56(2)(viib) provides an exemption from the angel tax to the start-up if it fulfils the conditions prescribed under Notification No. GSR 127(E), Dated 19-2-2019 issued by the DPIIT. Section 80-IAC provides deduction to the eligible start-up as defined therein up to 100% of the business profits for three consecutive assessment years.

A Proviso has been inserted to Section 56(2)(viib) by the Finance (No. 2) Act, 2019 to provide that in case of failure to comply with the conditions specified in the notification issued by DPIIT, the consideration received from the issue of shares, as exceeding the fair market value of such shares, shall be deemed to be the income of the company chargeable to tax for the previous year in which such failure takes place. Penal provisions under Section 270A were also introduced in case of failure to fulfil the conditions.

However, Section 80-IAC does not contain any provision to withdraw the deduction if the start-up fails to fulfil the prescribed conditions. It is apprehended that a corresponding amendment could be made to Section 80-IAC to withdraw the deduction if the assessee company fails to comply with the conditions prescribed in the DPIIT’s notification.

(Read more: Deduction to an eligible startup on Taxmann.com/Practice)

21.

Capital gain provisions should not contain the reference of any particular year in respect of sovereign gold bonds scheme Sovereign Gold Bond (SGB) Scheme is an investment scheme of the Central Government which offers the investors an alternative to hold gold in physical form.

There are several benefits of investing in SGBs. An individual is not liable to pay capital gain tax on the redemption of SGBs. Section 47 of the Income-tax Act provides that any transfer of Sovereign Gold Bond issued by the RBI under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual shall not be treated as a transfer for the purpose of capital gain.

Section 47 refers to the Sovereign Gold Bond issued under the Sovereign Gold Bond Scheme, 2015. However, the Central Government issues a new Sovereign Gold Bond scheme every year. Thus, section 47 should be suitably amended to remove reference of any particular year from the Sovereign Gold Bond Scheme.

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A similar amendment is also required under the Fourth proviso to Section 48, which provides the benefit of indexation while computing long-term capital gain arising from the transfer of Sovereign Gold Bond.

(Read more: Transactions not regarded as ‘transfer’ for capital gains on Taxmann.com/ Practice)

22.

Enhance the scope to apply for a lower tax collection certificate An assessee can apply to the Assessing Officer to issue a certificate for collection of tax at lower rates under section 206C(9). Such a certificate shall be issued if the existing and estimated tax liability of the assessee justifies tax collection at a lower rate. This benefit is only available to the persons covered under sub-sections (1) and (1C) of section 206. The assessee covered under sub-section (1F) (sale of motor vehicle), (1G) (remittance of foreign currency under LRS or sale of an overseas tour package) and (1H) (sale of goods) does not have the option to approach the assessing officer to issue lower tax collection certificate. It is suggested that the benefit to apply for a lower collection certificate shall also be extended to the persons covered under sub-section (1F), (1G) and (1H) of section 206C. (Read more: Certificate to collect TCS at lower Rate on Taxmann.com/Practice)

23.

Prosecution under Section 276BB should be non-cognisable under Section 279A on the lines of Section 276B Section 276B provides for the prosecution if the assessee fails to deposit the tax so deducted by it with the Central Government. Section 276BB provides for the prosecution if the assessee fails to deposit the tax collected by it with the Central Government.

Section 279A lists down the offences which are non-cognisable under the Incometax Act. This provision includes Section 276B but does not include Section 276BB. As both the provisions deal with the situations of default in deposit of tax deducted or collected by the assessee, there should be parity in both scenarios. So, it is recommended that section 276BB should also be covered under the list of noncognisable offences.

(Read more: Prosecution for failure to pay tax collected at source on Taxmann.com/ Practice)

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24.

Full exemption should not be denied to the trust on violation of Section 13 Section 13 of the Income-tax Act outlines the circumstances in which exemption of Sections 11 and 12 shall not be allowed to a charitable or religious trust. It restricts the exemption where trust gives benefit to an interested person. As a practice, the Assessing Officer denies the exemption in respect of entire income under Section 11 if there was a violation of provisions of section 13.

The Bombay High Court in the case of CIT(Exemptions), Pune v. Audyogik Shikshan Mandal [2019] 101 taxmann.com 247 (Bombay) has held that where funds of assessee-trust were utilised for purchase of a car in the name of its trustee, there was a violation of Section 13(2)(b), read with Section 13(3). However, denial of exemption under Section 11 should be limited only to the amount which was diverted in violation of Section 13(2)(b).

Thus, it is recommended that necessary amendments be made under Section 13 to ensure that the denial of exemption to trust is restricted to amount that was diverted in violation of Section 13.

(Read more: Withdrawal of Exemption on Taxmann.com/Practice)

25.

Condition to pay emoluments by specified modes under section 80JJAA should be applicable in case of new businesses also Section 80JJAA of the Income-tax Act provides that every assessee, earning business income and liable to the tax audit, can claim a deduction under this provision for additional employee cost. The deduction shall be allowed for 30% of the additional employee cost in three assessment years.

However, such deduction shall be allowed only if the assessee fulfils certain conditions. One of the conditions is that emoluments must be paid by any of the following modes: (a)

An account payee cheque;

(b) Account payee bank draft; (c)

By use of electronic clearing systems through a bank account; or

(d) Other prescribed electronic modes i.e. Credit/debit card, IMPS, RTGS etc.

This condition is applicable in case of an existing business only. To move towards digital India initiative, it is expected that the above condition regarding payment

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of emoluments through the above modes may be extended in the case of new businesses also.

(Read more: Deductions in respect of employment of new employees on Taxmann.com/ Practice)

26.

Seller for the purpose of TCS under Section 206C(1F) should include Individual or HUF The Finance Act, 2016, inserted sub-section (1F) to Section 206C to bring high-value transactions within the tax net. This provision provides that every person, being a seller, who receives any amount as consideration for the sale of a motor vehicle of the value exceeding Rs. 10 lakhs, shall collect tax from the buyer at the rate of 1% of the sale consideration.

The term ‘seller’ has been defined under clause (c) of Explanation to Section 206C. This clause defines the meaning of seller with respect to sub-section (1) and subsection (1F) of Section 206C. However, to include an individual or a HUF within the meaning of ‘seller’, it provides that total sales, gross receipts or turnover of such individual or HUF from the business or profession carried on by him should exceed Rs. 1 crore in case of business or Rs. 50 lakh in case of profession during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) are sold. This Explanation has inadvertently omitted to give a reference of sub-section (1F) of Section 206C. It is recommended that clause (c) of the Explanation to Section 206C should be amended to mention the reference of sub-section (1F) also. This Explanation should read as under: (c)

“seller” with respect to sub-section (1) and sub-section (1F) means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1F) are sold.

(Read more: Tax Collected at Source (TCS) on Taxmann.com/Practice)

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27.

Audit might be necessary for claiming Exemption under Section 80-IBA Deductions under Chapter VI-A are broadly categorised under 5 parts as follows: (a)

Part A: General

(b) Part B: Deductions in respect of certain payments (c)

Part C: Deduction in respect of certain incomes

(d) Part CA: Deduction in respect of other incomes (e)

Part D: Other deductions

Almost all sections providing profit-linked deductions under Part-C of Chapter VI-A require an assessee to fulfil certain conditions. One of such conditions is to get the book of accounts audited from a Chartered Accountant and furnish a report of such audit electronically in the specified form (i.e., audit report is furnished in Form 10CCB to claim deduction under Section 80-IA).

Deduction prescribed under Section 80-IBA is also a profit-linked deduction. This section provides that an assessee deriving profits and gains from the business of developing and building housing projects is eligible to claim deduction under this provision. 100% of the profits and gains derived from this business is deductible under this provision. To claim the deduction, the assessee has to comply with various conditions as to the size of the plot of land, residential unit, stamp duty value, and the time limit for completing the project. However, the condition to get the books of account audited is not a prerequisite for claiming this deduction.

It is expected that Section 80-IBA, being a profit linked deduction, would also require the assessee to get his book of accounts audited for being eligible to claim such deduction.

(Read more: Profits from Housing projects on Taxmann.com/Practice)

28.

Deduction of Tax on Dividend paid by any mode other than cash Section 194 provides for the deduction of tax from dividends. The tax has to be deducted by every Indian company or a company that has made the arrangements for declaration and payment of dividends within India. However, no tax shall be deducted from the payment of dividend to an individual shareholder if the payment is made by any mode other than cash and the aggregate amount of dividend paid or distributed to him during a financial year does not exceed Rs. 5,000.

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The relaxation from the deduction of tax is available if the dividend is paid by any mode other than cash. This provision provides a negative list of the prohibited mode of payment. Whereas various provisions, inter-alia, Section 40A(3), Section 269SS, Section 269T, Section 269ST, etc. provide a positive list of the permissible mode of payment. Therefore, it is recommended that similar to other provisions Section 194 should have the positive list of the permissible mode of payment, that is, an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

A similar amendment is also recommended in Sections 80D, 80GGA, 80G and 36(1) (ib).

29.

Enhance the Scope of not being an Assessee-in-default If any person, responsible for the collection of tax at source, fails to collect the whole or any part of the tax or after collection fails to deposit the same to the credit of the Central Government, then he shall be deemed to be assessee-in-default. A collector is not deemed to be in default if the amount is received from a person who has considered such amount while computing income in the return and has paid the tax due on such declared income. The receiver will have to obtain a certificate to this effect from a Chartered Accountant in Form No. 27BA and submit it electronically.

However, this relief is allowed only in respect of sub-sections (1) and (1C) of section 206C. It is recommended to extended this benefit to the persons covered under sub-sections (1F), (1G) and (1H) of section 206C. (Read more: Assessee-in-default on Taxmann.com/Practice)

30.

Higher Rate of Interest for Non-deposit of TCS Amount Section 201 provides the consequences in case of any failure to deduct or to pay the tax deducted at source. The provision provides that the deductor shall be liable to pay interest at the rate of 1% per month/part of the month in case there is a failure to deduct tax. However, where a deduction has been made but tax has not been deposited, the interest is levied at the rate of 1.5% for every month or part of the month.

In contrast to the above, Section 206C prescribed only a single rate of interest. If the collector fails to collect TCS or after collecting fails to deposit it with Govt., interest is levied at the rate of 1% for every month or part month. It is expected that the Govt. may bring parity in the penal provision for both the default. Section 206C could be

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amended to provide a higher rate of interest in case tax has been collected but not deposited to the credit of the Central Govt.

(Read more: Consequences of failure to collect or pay TCS on Taxmann.com/Practice)

31.

No Section 44AD Benefit for Speculative Business Section 44AD provides that an assessee being a resident individual, HUF or a partnership firm (excluding LLP) carrying on any business is eligible to declare its income at the presumptive rate of 6% or 8% as the case may be.

However, the following persons cannot opt for provisions of Section 44AD: (a) Person carrying on the business of plying, hiring or leasing goods carriages referred to in Section 44AE; (b) Persons carrying on professions as referred under Section 44AA(1); (c)

Persons earning income in the nature of commission or brokerage; or

(d) Person carrying on agency business.

Income-tax Act does not restrict the person carrying on speculative business to opt for the presumptive taxation scheme prescribed under Section 44AD. However, instructions appended to the ITR Form 4 provide that income from the speculative business is not required to be computed under Section 44AD. It is expected that instead of clarifying in the instructions to the ITR, it may be provided specifically in the provision itself to avoid any litigation on this point.

(Read more: Speculative Business and Presumptive Scheme for Businesses under Section 44AD on Taxmann.com/Practice)

32.

Allow payment of advance tax in a single instalment in case Section 44AE presumptive scheme is opted Section 211 of the Income-tax Act provides the due dates and the amount of advancetax payable in instalments by the taxpayers. This provision provides that a taxpayer is required to pay the advance tax in four instalments during the financial year on the specified due dates. However, this provision allows the taxpayers, who have opted for a presumptive taxation scheme under Section 44AD and Section 44ADA to pay 100% of advance tax by 15th March of the financial year.

As there are more presumptive taxation schemes allowed under Sections 44AE, 44B, 44BB, etc., this option to pay advance tax in a single instalment is allowed only for

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those who have opted for Section 44AD and 44ADA presumptive scheme. If the analogy behind such provision was to extend this option to only resident taxpayers, then this option should be allowed to those resident taxpayers as well who have opted for Section 44AE presumptive scheme. Thus, it is recommended that the option to pay the entire advance tax in a single instalment should be extended to those assessees as well who have opted for the Section 44AE presumptive scheme.

(Read more: Advance Tax and Presumptive Scheme for Transporters under Section 44AE on Taxmann.com/Practice)

33.

Time-limit may be specified for passing an order in case of default in deduction of tax from the payment made to nonresident As per Section 201 of the Income-tax Act, if a person responsible for deduction of tax at source, fails to deduct the whole or any part of the tax or after deduction fails to deposit the same to the credit of the Central Government, then he shall be deemed to be an assessee-in-default.

Sub-section (3) of Section 201 provides that no order deeming a deductor to be an assessee-in-default, on failure to deduct the tax from a person resident in India, shall be passed after expiry of 7 years from the end of the financial year in which payment is made, or credit is given or after the expiry of 2 years from the end of the financial year in which correction statement is furnished, whichever is later.

However, these time limits are applicable only when TDS defaults are related to payments made to a person resident in India. In other words, sub-section (3) does not apply if there is a default in deduction of tax with respect to payments made to a non-resident.

As no time-limit has been prescribed under the Act for passing an order against a person who defaults in deducting or depositing tax with respect to payments made to a non-resident, various courts have held that the action can be taken by the department in a reasonable time but what should be a reasonable time, is quite controversial.

Hence, the Government may make a necessary amendment under sub-section (3) of section 201 to specify the time-limit for passing an order of assessee-in-default where a person makes default in deducting or depositing tax in respect of payments made to a non-resident. It is recommended that the Govt. should bring both the provisions at par.

(Read more: Consequences of failure to deduct or pay TDS on Taxmann.com/Practice)

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34.

Taxability of Capital Gains in case of a JDA entered into by assessees other than an Individual or HUF The Finance Act, 2017 inserted sub-section (5A) in Section 45 to provide that capital gains arising in case of JDAs shall be chargeable to tax in the year in which the competent authority issues a completion certificate. This provision is applicable only in cases where the owner of immovable property is an Individual or HUF. The law does not provide any clarity on taxability if JDAs have been entered into by any other assessee. Thus, it is recommended that the Govt. bring clarity regarding the taxability of capital gains in case JDAs are entered into by any assessees other than an Individual or HUF. (Read more: Computation of capital gains in case of Joint Development Agreements (JDA) on Taxmann.com/Practice)

35.

Meaning of the Term ‘Month’ and Computation Thereof As per the provisions of section 201(1A), in case of failure to deduct TDS, interest is to be paid at the rate of 1.5% from the date of deduction to the date of payment.

Any part of the month shall be considered as one full month. So, the understanding should be that if TDS is deducted on 23rd April, 2017 and payment is made on 8th May, 2017, interest should be paid for one month.

However, Income-tax Dept. calculates interest for 2 months because it considers April and May as two separate calendar months. So, the scenario is that even if the TDS is late by 1 day, interest is calculated for 2 months which seems to be absurd.

The ITAT in the case of Bank of Baroda v. DCIT [2017] 88 taxmann.com 103 (Ahmedabad - Trib.) also held that interest was to be levied only for actual period of delay, i.e., from the date on which tax was deducted and till date on which tax was deposited.

If such a period exceeds one month, then the full month’s interest was leviable.

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Taxmann’s 35 Expectations from the Union Budget 2022

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