–By Rajesh Srinivasan

The Union Budget has always been a highly anticipated event for the common man and businesses alike. Bearing in mind the macroeconomic impact of Covid-19, we expect the Union Budget 2021 to focus on measures to boost economic demand, simplify tax structures, promote investments and enhance tax certainty. The government should take the lead in setting the tone for our ‘new normal’, and we expect policy makers to keep the following in mind from policy and procedural standpoint in the ensuing Budget 2021.

KEY EXPECTATIONS FROM UNION BUDGET 2021

CORPORATE TAXATION

Encouraging green field investments and easing liquidity

▪ The shifting geo-political sands against China presents India with an excellent window to attract overseas investments. To capitalize on this, the government should provide long-term visibility in the tax and regulatory frameworks. To stimulate investment flows, Government can introduce industry-specific incentives, revisit SEZ benefits and provide concessional tax-withholding rate for project funding in priority sectors.
▪ Due to the COVID-19 pandemic, TDS and TCS rates were reduced by 25% from 14 May 2020 until 31 March 2021. Reduction in TDS and TCS rates should continue for one more year until 31 March 2022 to provide enhanced liquidity. A simplified and quicker process to issue refunds would also greatly help in easing cash flow burden of taxpayers.

Improved utilization of information and technology

▪ In today’s digital world, the tax department has access to data from various sources such as GST, Customs, Banks, Global Transfer Pricing database and other statutory portals. Instead of issuing general questionnaires during tax assessments, a more focused industry-specific approach would bring in lot more efficiency for revenue authorities and taxpayers.
▪ Clear rules and regulations should be framed for avoiding roving and exhaustive questionnaires during faceless assessment proceedings. While uploading the tax return, an option can be made available to upload appropriate notes in order to avert additional queries during assessment proceedings.
▪ Faceless tax assessments and faceless appeals were introduced during 2020. While this is a welcome move, certain complex cases may require verbal explanations. Taxpayers should be provided an option to upload audio or video explanations under faceless assessments and appeals, without any separate approval process.

Furthering Ease of doing business measures

▪ Several cases get relitigated merely due to change of opinion of the tax officers or on account of internal audit queries. Guidelines for reassessment needs to be streamlined to mitigate unnecessary proceedings creating hardships to honest taxpayers.
▪ Guideline should be framed for unit tax officers approaching foreign jurisdictions for Exchange of Information. Opportunity to be given to taxpayers for providing clarification based on information obtained from overseas jurisdiction before initiating any proceedings as this would go a long way in alleviating taxpayers’ apprehensions.
▪ MAT credit set-off period was extended to 15 assessment years vide Budget 2017. However, no similar extension was granted for tax losses. Given the current economic scenario, the Government should extend time limits for set off of tax losses from eight years to 15 years.
▪ From FY 2020-21, the ambit of TCS provisions were widened to include all sale transactions of more than rupees fifty lakhs within India. Considering the overall tax revenue collection and other practical challenges, the Govt. should consider increasing the threshold for applicability of TCS provisions to aggregate transaction value of more than rupee two crores.

Clarity on taxation relating to Non-residents

▪ Equalization Levy (EQL) provisions were introduced from 1 April 2020 wherein non-residents are required to pay 2% on consideration received or receivable for e-commerce supply or services. Similarly, Significant Economic Presence (SEP) provisions would be applicable from 1 April 2021 whereby certain transaction in respect of any goods, services or property carried out by a non-resident in India shall be subject to tax in India. Considering the overlap between SEP, EQL and existing withholding tax provisions, the Government should provide clarifications on the scope and expected interplay between these provisions in the ensuing Finance Bill.
▪ Government could speed up disposal of all pending applications before Authorities for Advance Rulings (AAR) in the wake of global tax and economic developments.
▪ Presently, tax refunds claimed by non-residents in the return of income are not being processed as the department insists on providing an Indian bank account to credit the refunds. This process should be streamlined to accept foreign bank account details for processing tax refunds of non-residents.

PERSONAL TAXATION

On personal tax front, the Government can provide special deduction for COVID medical treatment, increase the standard deduction, Section 80-C deduction as well as revisit the tax slab.

WAY FORWARD

In the Year 2020, the Government had announced multiple stimulus packages to rejuvenate the economy laid low by COVID-19. While the stimulus provided temporary balm, the government should take the lead by providing certainty and visibility to taxpayers by clarifying ambiguous provisions, omitting redundant and recalibrating outdated one. This will bring confidence in the taxpayers and reduce litigation which is a major impediment in the timely collection of revenue.

Information for the editor for reference purposes only: Rajesh Srinivasan, Partner and VP Manikandan, Director from Deloitte Haskins and Sells LLP