Price range 2021 rationalises tax guidelines, removes difficulties confronted by taxpayers

The proposals by Finance Minister Nirmala Sitharaman in the Union Budget 2021 showcase an approach to shift the economy from survival mode to revival mode.

Considering the unprecedented public expenditure due to the COVID-19 pandemic, it was widely speculated that the government as an expedient measure could propose an additional cess or increase tax rates.

However, putting all conjectures to rest, the FM took the route of strategic disinvestment, monetisation of government assets and higher FDI window to raise needed funds.

The budget positions India with long-term reformative measures focusing on capital investments. Although the budget speech was brief with mention of a few tax proposals, the fine prints of the Finance Bill include various proposals to incentivise, rationalise and remove difficulties faced by taxpayers.

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The e-commerce equalisation levy introduced in 2020 garnered attention from businesses across the globe and raised questions that required immediate redressal. The government has clarified the non-applicability of e-commerce equalisation levy on transactions liable for tax such as royalty or fee for technical services, retrospectively from April 1, 2020.

The ambiguity in activities covered as online sales or online provision of services has been elucidated by including acceptance of offer for sale, placing or accepting purchase order, payment of consideration, or supply of goods or provision of services, partly or wholly, on an online platform.

Additionally, the gross consideration received by both marketplace as well as inventory-based e-commerce operators would be liable for charge of equalisation levy, which is bound to lead to instances of higher levy for marketplace models, resulting in refund situations.

These clarifications could result in unwarranted hardships for businesses operating under a marketplace model earning listing fee or commission income, against which the equalisation levy would be applicable on entire consideration including cost of products or services.  

A new TDS provision has been introduced as a flip side to Section 206C(1H) under income tax provisions, where TCS was required to be collected on sale of goods worth Rs 50 lakh and above. The new Section 194Q levies TDS at the rate of 0.1% on purchase value of goods with similar conditions applicable to a seller under Section 206C (1H), to cover transactions exceeding Rs 50 lakh from both ends. This ensures that any transaction of purchase or sale of goods exceeding Rs 50 lakh is subject to either TDS or TCS where the turnover of one of the parties exceeds Rs 10 crore in the preceding year.

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The Union Budget 2021 also proposes a higher rate of TDS/TCS at a rate of twice the prescribed rate or 5 per cent, whichever is higher, if the payee has not filed an income tax return for the preceding two years. Although the amendment aims to penalise return non-filers, it is unclear as to how the tax deductor would ascertain the filing status of the specified person. Considering privacy and confidentiality, the payee may not be willing to share an acknowledgement of tax return and hence this new-found provision needs a mechanism for implementation.  

Minimum government and maximum governance was a pillar on which the Union Budget was based. Various measures have been taken to reduce tax litigation. The budget has proposed to set up a Dispute Resolution Committee for small taxpayers with taxable income of up to Rs 50 lakh and disputed income of up to Rs 10 lakh.

To decrease the uncertainty of tax assessments for taxpayers, it has been proposed to reduce the time limit for re-opening assessment to three years from the previously prescribed six years and in cases of serious tax evasion, a higher time limit of 10 years would only apply where there is evidence of concealment of income of Rs 50 lakh or more in a year.  

Additionally, the Union Budget has put to rest some of the most litigated technical tax issues under the income tax law, such as depreciation of goodwill and expenditure claim on delayed contribution of provident funds by the employer.

The government has cleared its intention of covering all types of transfers such as exchange, relinquishment etc. under the ambit of slump sale. Aimed at making the tax litigation process more transparent and hassle-free, it has been proposed to introduce a faceless and jurisdiction-less Income Tax Appellate Tribunal.

Though the government has taken necessary contemporaneous steps such as the Atmanirbhar Bharat package to counter the challenges posed by the pandemic, this budget was expected to provide more relief to most affected ones including salaried individuals and businesses in the hospitality and travel sector. The focus on self-reliance, innovation, research and development, infra capex and digital payments in Union Budget 2021 would definitely help in lifting the Indian economy from under $3 trillion to $5 trillion in the near term.  

(Rakesh Nangia, is Chairman and Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP.)