How FM Nirmala Sitharaman can make it simpler for taxpayers this interim budget

Recommendations have been submitted through different forums on simplification of tax, ease of compliance and review of a select few reliefs under Chapter VIA and provisions related to TDS.

Written by Tapati Ghose & Sangeetha BM

Over the last two-three years, the government has made major strides in easing the process of filing and processing of tax returns through pre-filled returns, taxpayer data through the AIS, TIS and Form 26AS. The focus of the Finance Minister in the interim budget may just be on making structural changes for ease of operation to taxpayers rather than providing significant tax breaks, save a few.

Recommendations have been submitted through different forums on simplification of tax, ease of compliance and review of a select few reliefs under Chapter VIA and provisions related to TDS.

While the new tax regime is far simpler and administratively less burdensome, a large section of individuals finds the regular tax regime financially more advantageous, given the plethora of tax relief available. While the features of the simplified tax regime have been enhanced further in the previous Budget, something more still needs to be done to make it more attractive by way of widening the tax slabs, reducing tax rates etc., to make a compelling case for a shift to the new regime.

The capital gains tax regime needs to be rationalised. The current capital gains tax regime is complex, difficult to comprehend and consequently poses several challenges. Given the wide variety of capital assets, their classification into long term/short-term depending on different holding periods, the varied tax rates, differential treatment depending on tax residency in a few cases etc., it’s a herculean task for a layman taxpayer to get the compliance right. To appeal more to the capital markets, a relook at the entire capital gains taxation structure is a necessity.

The ever increasing medical costs (medical expenses and insurance) warrants an enhanced deduction limit under Section 80D which could reduce the financial burden on the taxpayers to some extent. A level treatment for tax relief for savings and fixed deposit interest could be considered, given that most banks allow a switch between accounts based on an individual’s cash flow requirement. The threshold for the deduction at Rs. 10,000, is again very low. An amendment in Section 80TTA in line with 80TTB is hence expected.

We have seen a consistent increase in cross-border movements; availing relief under the Double Taxation Avoidance Treaties for such globally mobile employees continues to be complex. The current procedure of claiming foreign tax credits or treaty relief including filing Form 67/Form 10F should be made simpler. Availing treaty relief at the tax withholding stage can be enabled by amending the Form 24Q/Form 16 to factor such claims.

Again, given differential tax years between India and most other nations, the due date of December 31 for filing of belated / revised tax returns does not allow for accurate foreign tax credits in many cases. Tax compliance from overseas can be made easier on many counts – enabling foreign bank accounts to make tax payments, direct credit of tax refunds to overseas bank accounts, e-verification of tax returns via OTP to foreign mobile numbers or introducing two factor authentication (different OTPs for foreign mobile numbers and email addresses).

Another important area where amendments could be made is to widen the scope of information covered in Annual Information Statement, this will further enhance the pre-filing of tax return feature.

While the labour codes are unlikely to take effect before the General Elections, the Finance Minister could introduce an enabling provision to enable a seamless transition when they do come into effect, such that current tax relief available for retirement benefits are not hampered and employers do not face the challenge of uncertainty on interpretations to be taken. One example is the definition of salary / wages under the current tax law vis a vis the Labour codes where there is a substantial change.

Simplifying some of the current processes, enhancing deduction limits, enabling accurate/better compliance are definitely some of the top expectations from the upcoming Budget.

(By Tapati Ghose, Partner, Deloitte India and Sangeetha BM, Manager, Deloitte India)

Written by Tapati Ghose & Sangeetha BM

Over the last two-three years, the government has made major strides in easing the process of filing and processing of tax returns through pre-filled returns, taxpayer data through the AIS, TIS and Form 26AS. The focus of the Finance Minister in the interim budget may just be on making structural changes for ease of operation to taxpayers rather than providing significant tax breaks, save a few.

Recommendations have been submitted through different forums on simplification of tax, ease of compliance and review of a select few reliefs under Chapter VIA and provisions related to TDS.

While the new tax regime is far simpler and administratively less burdensome, a large section of individuals finds the regular tax regime financially more advantageous, given the plethora of tax relief available. While the features of the simplified tax regime have been enhanced further in the previous Budget, something more still needs to be done to make it more attractive by way of widening the tax slabs, reducing tax rates etc., to make a compelling case for a shift to the new regime.

The capital gains tax regime needs to be rationalised. The current capital gains tax regime is complex, difficult to comprehend and consequently poses several challenges. Given the wide variety of capital assets, their classification into long term/short-term depending on different holding periods, the varied tax rates, differential treatment depending on tax residency in a few cases etc., it’s a herculean task for a layman taxpayer to get the compliance right. To appeal more to the capital markets, a relook at the entire capital gains taxation structure is a necessity.

The ever increasing medical costs (medical expenses and insurance) warrants an enhanced deduction limit under Section 80D which could reduce the financial burden on the taxpayers to some extent. A level treatment for tax relief for savings and fixed deposit interest could be considered, given that most banks allow a switch between accounts based on an individual’s cash flow requirement. The threshold for the deduction at Rs. 10,000, is again very low. An amendment in Section 80TTA in line with 80TTB is hence expected.

We have seen a consistent increase in cross-border movements; availing relief under the Double Taxation Avoidance Treaties for such globally mobile employees continues to be complex. The current procedure of claiming foreign tax credits or treaty relief including filing Form 67/Form 10F should be made simpler. Availing treaty relief at the tax withholding stage can be enabled by amending the Form 24Q/Form 16 to factor such claims.

Again, given differential tax years between India and most other nations, the due date of December 31 for filing of belated / revised tax returns does not allow for accurate foreign tax credits in many cases. Tax compliance from overseas can be made easier on many counts – enabling foreign bank accounts to make tax payments, direct credit of tax refunds to overseas bank accounts, e-verification of tax returns via OTP to foreign mobile numbers or introducing two factor authentication (different OTPs for foreign mobile numbers and email addresses).

Another important area where amendments could be made is to widen the scope of information covered in Annual Information Statement, this will further enhance the pre-filing of tax return feature.

While the labour codes are unlikely to take effect before the General Elections, the Finance Minister could introduce an enabling provision to enable a seamless transition when they do come into effect, such that current tax relief available for retirement benefits are not hampered and employers do not face the challenge of uncertainty on interpretations to be taken. One example is the definition of salary / wages under the current tax law vis a vis the Labour codes where there is a substantial change.

Simplifying some of the current processes, enhancing deduction limits, enabling accurate/better compliance are definitely some of the top expectations from the upcoming Budget.

(By Tapati Ghose, Partner, Deloitte India and Sangeetha BM, Manager, Deloitte India)