Propose Complete Overhaul in Individual Taxation; Reduced tax burden on R&D and Angel Investors
Bengaluru 13th January 2023: Bangalore Chamber of Industry and Commerce, (BCIC) presented its list of budget recommendations to Mr. Tejasvi Surya, MP – Bengaluru South requesting him to convey the same to the Hon. Finance Minister. The ten-point agenda included recommendations in relation to incentives and deductions, individual taxation, digital economy, international tax / transfer price, business recognition, capital gains, tax deducted at source, tax assessment / appeals, tax administrative issues and provisions to be repealed.
BCIC also proposed bringing in the concept of ‘weighted deduction’ instead of the existing deduction under section 80JJAA relating to incentives to employment generation, based on additional employee cost to the extent of 150% per annum. It suggested a condition like minimum net increment of 75 or 100 employees can be brought in to provide deduction to real employment generators. In order to avoid exploitation, the deduction may be restricted to not apply to top management, by way of salary benchmarking, while clarifications on contract labour can be provided in the section itself, to avoid any confusions/ litigation.
BCIC also proposed reducing tax burden on angel investors where appropriate exemption should be granted to investments made in recognized start-ups from the applicability of section 56(2)(x) of the Act. As the provisions of section 56(2)(x) are intended to curb laundering of non-tax paid money through companies, the same should clearly not be made applicable to genuine funding provided to start-ups. This will help in boosting the start-up ecosystem and make India the preferred destination for start-ups.
BCIC also urged the government to consider a reduced tax rate for companies exclusively engaged in R&D.
BCIC also recommended an overhaul of the individual taxation regime. Currently, the exemption limit for individuals below 60 years is INR 2,50,000, with tax rebate for income upto INR 5,00,000. Separately, individuals also have an option to select a ‘new regime’ of taxation, with different tax rates. However, the old regime coupled with various deductions and the new regime with differential tax rates has made individual taxation more intricate. Therefore, it is recommended that the individual taxation (old regime and new regime) be overhauled entirely, by increasing tax exemption for individuals earning up to Rs. Ten lakhs per annum, with the next slab being taxed at 10%, 20% and 30% for earnings up to Rs. 15 lakhs, Rs. 25 lakhs and Rs. 20 lakhs respectively. In order to protect the revenue gap, instead of a flat surcharge rate, an incremental surcharge may be introduced for each increasing bracket of income. Further, with above tax rates, no deductions should be allowed under any section of the Act, other than section 80D (medical insurance) and section 80G (donations). This proposed taxation system helps in making individual taxation in India more competitive, retaining young talents and thereby leading to capital creation. With regard to a simplified tax regime (‘STR’) for senior citizens above 80 years of age, BCIC recommended that no tax deduction should be made for earnings up to Rs. 10 lakhs and thereafter 10% for earnings up to Rs. 15 lakhs, 15% for earnings up to 20 lakhs and 20% for earnings above 20 lakhs.
BCIC also suggested amendments to Significant Economic Presence (SEP) rules suggesting that the erstwhile definition be restored to restrict the applicability of SEP to only transactions carried out through digital modes, as was the intent of the legislature at the time of introduction of SEP under the Act. In order to clear the uncertainty, it should specifically be clarified that non digital transactions would not attract SEP provisions. Further, in order to reduce ambiguity and possible litigation due to the same, it recommended to define the persons who would be covered by the term ‘any person in India’.
With regard to taxation of Virtual Digital Assets (‘VDA’) BCIC recommended that a clarification be issued on whether receipt of cryptocurrency by way of airdrops is taxable under section 56(2)(x) of the IT Act.
BCIC also recommended the replacement of section 281 of the IT Act with the option of self-declaration through an online portal. With regard to tax litigations BCIC recommends that a special drive may be initiated to clear all pending litigation till AY 2020-21 and consider waiver of all demands below rupees one lakh. With regard to declaration of taxpayers charter, It is also suggested that provisions which instil a sense of accountability on tax authorities be provided in section 119A of the IT Act. It is recommended that a permanent task force, members of which change every two years be formed to conduct in depth research and advise the Ministry of Finance of Important tax issues.
It is recommended that appropriate administrative guidelines should be issued to limit the scope of discretionary powers exercised by tax authorities in order to reduce ambiguity and litigation with taxpayers. BCIC recommends amendments to section 119 of the IT Act to include all cases where genuine hardship of a taxpayer is established at High Court level. Tax administrations in developed countries recognize taxpayers as customers. Such an approach towards taxpayers can help reduce large scale litigation and foster a sense of active participation in nation building, amongst such large taxpayers. Further BCIC has recommended a host of measures to ease out the challenges faced by Tax Payers on administration and also mooted the proposal of Tax Payer as a Customer.
Commenting on the recommendations and amendments proposed by BCIC, Dr. L Ravindran, President BCIC said, “The forthcoming budget is a very important one, given the global economic scenario, and the strong position that India is currently at, especially with regard to manufacturing and R&D. We at BCIC created a focused group for providing an opportunity to bring together taxpayers’ recommendations in relation to income tax matters, by way of this representation paper. We are hopeful that these recommendations are considered which will help India further improve on ease of doing business, simplify taxes, apart from providing relief to taxpayers on various matters covered in the paper.”
Commenting on the budget recommendations Mr. K R Sekar, Immediate Past President, BCIC and Partner, Deloitte Touche Tohmatsu India LLP said, “This Budget is an important one considering the current situation of Indian Economy and India is best positioned to take advantage of Global situation. There are significant expectations on this budget to increase employment generation, to attract more foreign investment into India, to revive Domestic Investment and boost the overall economic development across the sectors. The Government over the last two years has brought in many measures to simplify the overall tax regime and could further rationalize the taxation structure, promote digital transformation, and strengthen India’s export competitiveness. In addition, the tax administrative reforms which are critical for sustained development and rationalizing capital gains taxation and personal taxation should also be an important agenda for the Government”.
