FM Nirmala Sitharaman's Budget goal: Lower rates, simple structure

The FM disagreed with experts who termed the new tax regime complex and unavailing saying it would benefit some taxpayers, if not all.

Finance Minister Nirmala Sitharaman on Sunday said the new tax regime proposed in her second Budget would ultimately lead to lower rates with simple structure.

Dismissing criticism that the new regime would not be largely beneficial to the assessees, she said, “eventually this should lead to a system where people are taxed at the lowest possible rate and are given a simple system. I am starting a scheme, which will eventually end there. For this, I’m not forcing people.” She was speaking to the media in an informal interaction a day after presenting the Union Budget in Parliament.

The FM disagreed with experts who termed the new tax regime complex and unavailing. She said the new scheme would benefit some taxpayers falling in certain brackets, if not all.

“…because the income tax cuts are deeper in the new scheme, we believe a taxpayer from a particular income bracket will be much better off coming into the new system. And in the new system, which however much I repeatedly say has no exemptions, there are some exemptions that we have allowed,” Sitharaman said.

Industry experts, however, argued that two tax regimes with optionality for personal tax, as in case of corporate taxes, only make the structure more complicated. Analysts sent out data to explain how the new tax regime would not be beneficial for those who take exemptions.

But the minister said, “I believe many of the calculations have probably not taken into account the exemptions which have been allowed in the scheme.”

Budget 2020

Direct Taxes Code panel for status quo on LTCG tax, STT; wants DDT to go

Suggests rejig of 20% and 30% slabs of personal income tax.

The task force to overhaul the nearly 60-year-old Income Tax Act has recommended retaining the long-term capital gains (LTCG) tax and the securities transaction tax (STT), while abolishing the dividend distribution tax (DDT). The panel has instead suggested imposing tax on the person receiving dividends, sources in the know said.

The proposed move to withdraw the DDT would help encourage investments by addressing multiple taxation of income and bringing down the effective tax rate on companies, which is among the highest in the world, the sources said.

The eight-member panel on the direct taxes code (DTC), which submitted its report to Finance Minister Nirmala Sitharaman last week, has proposed a range of reforms for personal income tax by rationalising the highest tax slabs of 20 per cent and 30 per cent to improve compliance.

Although the market has been demanding the withdrawal of the LTCG tax reintroduced in last year’s Budget, the panel, led by Central Board of Direct Taxes Member Akhilesh Ranjan, is learnt to have taken a view that no preferential treatment must be given to any class of investors. The LTCG tax is levied on gains arising from the transfer of listed equity shares exceeding Rs 1,00,000, at 10 per cent.

Besides, the case for retaining the STT has been its simplicity of collection and assured revenues. The STT is a direct tax payable on the value of taxable securities transactions done through a stock exchange.

It is levied at 0.1 per cent of turnover for delivery-based equity transactions, while for intra-day transactions, the STT for purchase is nil, and for sale, it is 0.025 per cent of the turnover.

“There is a strong case to do away with the DDT to improve investor sentiment. It is resulting in multiplicity of taxation for companies. Besides, foreign shareholders cannot avail of foreign tax credit as the DDT is not borne directly by them,” said a person in the know. “LTCG should continue to be levied as is the case today to promote parity.”

Business Standard

Pay high income tax? Govt may call you to have tea with the PM or FM

The idea is to encourage taxpayers to willingly pay more.

In a rather unconventional plan, the Ministry of Finance has decided to reward India's top income tax payers by inviting them to tea with the prime minister or the finance minister.

The idea is to encourage taxpayers to willingly pay more, according to a report published in Livemint. The scheme is likely to figure in Modi's government's first Budget session, after being re-elected in the recently conducted Lok Sabha elections. Along with the privilege of having tea, the taxpayers will also get other non-monetary incentives.

Government data shows that 1,053 individuals with incomes of Rs 5 crore or more contributed over Rs 12,000 crore in personal income tax in assessment year 2017-18.

Currently, the income tax department issues certificates of appreciation to those who pay their taxes diligently.

The plan to honour top taxpayers comes amid the government's need to meet the fiscal deficit target and the revenue department's need to find additional resources for welfare schemes.

Direct tax receipts for the year ended March 31 missed the government’s revised target of Rs 12 trillion. At the close of the fiscal year 2018-19, direct tax collection touched Rs 11.5 trillion, leaving a gap of Rs 50,000 crore against the revised revenue target of Rs 12 trillion.

An expert committee on revamping the Income Tax Act is expected to submit its report by the end of July.

Tax bracket

At present, individuals who earn between Rs 50 lakh and Rs 1 crore a year pay a surcharge of 10% and those with incomes above Rs 1 crore pay a 15% surcharge on their taxable income. Businesses, too, pay surcharge on incomes above Rs 1 crore.

Domestic companies with incomes in the range of Rs 1-10 crore, a 7% surcharge is applicable

Surcharge goes up to 12% for domestic companies and 5% for foreign companies with incomes above Rs 10 crore.

Business Standard

Interim Budget 2019: Using technology to increase tax base and reduce rates

With electronic filings and tax administrations in India, there has been a fundamental shift from quantity to quality.

In the Interim Budget 2019 speech, Finance Minister Piyush Goyal has reiterated the government's aim to continue technology-led tax reforms.

Technology to increase tax base and reduce rates

The use of technology is the only sustainable measure to increase tax compliance, tax base and eventually, tax collections. It is only when the government has reasonable surety of tax collections, can it take the steps to reduce tax rates and lower the burden on existing tax payer base.

According to government data sources, FY18 saw a 26 per cent rise in the number of income tax returns filed compared to last year, effectively adding 9.95 million new income tax payers. Estimates, according to statements of senior revenue officials, for new taxpayers to be added in 2019-20 is around 10 million. Consequently, there has also been a steady increase in tax collection year-on-year. This has allowed the government to reduce tax rates, for instance slashing the rates for companies having turnover below Rs 250 crore to 25 per cent and recent reductions in GST rates. Major contributors to these initiatives are technology-led reforms.

(Business Standard)

Digital tax administration and taxpayer experience

It is not too far in history when individual taxpayers had to undergo several rounds of follow-up with the tax office to initiate refunds. With the set-up of Bangalore CPC, refunds for individual taxpayers are swift and relatively quite easy.

The Finance Minister’s statement that the government has now approved a technology-intensive project to transform the Income Tax Department into a more assessee-friendly one is music to ears. It is proposed that returns will be processed within 24 hours and issued simultaneously. If the government is able to achieve this for corporate tax payers, on the lines of individual tax payers, it would be a giant leap forward in digital tax administration.

The first wave of e-assessments, particularly for small and medium-sized assessees, appears to have yielded results. It is proposed that within the next two years, almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymised back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers. This will go a long way in increasing governance and quality of tax compliance.

Needless to say, it is a big change from the current system, and a well thought out approach in implementation would be key. Unlike GST, the government will have sufficient room to plan and work towards a successful implementation of this strategically important project.