Government has improved its approach to taxpayers

Our tax laws are heavily loaded in favour of the tax department. Over the past two or three decades, taxpayers have become used to amendments in tax laws that significantly increased their compliance burden, and also their ultimate tax liability, though the tax rates ostensibly did not increase. Recommendations of various committees, which were set up, were generally implemented only if they were in favour of the tax department. In this background, the recommendations in the draft report of the Justice Easwar Committee come as a welcome, refreshing and long overdue development.

The recommendations have taken into account most of the problems currently being faced by taxpayers. These include reduction in the rates of tax deduction at source (TDS), increase in the limits for presumptive taxation of small businesses and tax audits, introduction of a presumptive taxation scheme for small professionals, increase in the rates of interest on overdue refunds to taxpayers, measures to ensure that taxpayers get credit for TDS and rationalisation of the deeming fictions relating to purchase and sale of immovable property.

The committee has rightly pointed out that the existing rates of TDS are too high, considering the slab rates of tax applicable to taxpayers. Further, the limits for payments beyond which TDS is applicable are too low, having not been revised for many years. This creates unnecessary TDS procedures and paperwork for both the deductor and the taxpayer, and results in large amount of refunds due to taxpayers. Given the fact that almost 80% of individual taxpayers pay an average tax rate of only 5%, the draft recommendations suggest a TDS rate of 5% with a threshold limit of Rs.15,000 in respect of interest and commission or brokerage.

As regards interest rate on refunds, the committee has rightly rejected the tax department’s justification of a lower rate of 6% per annum on refunds than that of 12% per annum payable on arrears of taxes, that taxpayers would intentionally deposit more tax just to earn interest on the excess payment, by suggesting that a higher interest rate of 12% per annum be paid, where the refund is delayed beyond 6 months from the month of filing the income tax return, and that interest at 18% per annum be paid if the refund is delayed beyond one year from the month of filing the return.

As regards credit of TDS, where the tax deductor has not correctly filed TDS returns and it does not, therefore, reflect in the online tax statement of the taxpayer, today the taxpayer is completely at the mercy of the tax deductor, who has to rectify her TDS returns before the taxpayer can get the credit. In such cases, the committee has suggested that the taxpayer can file a form with the tax authorities pointing out such mistakes, which would then be considered and tax credit given to the taxpayer after verification of the claim.

In relation to purchase of immovable property, where the difference between the stamp duty valuation and the purchase price as per the agreement can be taxed as the income of the purchaser, the committee has rightly suggested that this provision should be eliminated. In case of the seller of the property, where also such difference can be taxed, if the difference is on account of the fact that there is a time lag between the agreement to sell and the actual transfer, the committee has suggested that the stamp duty valuation as on the date of the agreement to sell should be considered, and not the valuation on the date of transfer. Another good suggestion is that gains arising from transfer of shares and securities held for more than 12 months should invariably be taxed as capital gains, and not as business income, if such shares or securities are not held as stock in trade. Similarly, gains up to Rs.5 lakh on transfer of shares and securities held for less than 12 months (not as stock in trade) would also be treated as capital gains. If accepted, this suggestion would end a significant amount of unnecessary litigation as to the classification of such gains, whether as business income or as capital gains. It is being suggested that the turnover limit for the presumptive tax scheme for small businesses, as well as for tax audits for businesses, should be increased from Rs.1 crore to Rs.2 crore.

Another suggestion is to have a presumptive tax scheme for small professionals with gross receipts of up to Rs.1 crore, where their income would be presumed to be one-third of their gross receipts. Of course, taxpayers would continue to have the option of declaring their actual income, if such income is lower than the presumptive income. It is also being suggested that the gross receipts tax audit limit for professionals be enhanced to Rs.1 crore from Rs.25 lakh.

There are many more such suggestions, all of which would benefit taxpayers, either by creating a fair playing field, or by eliminating the risk of unnecessary litigation through clarity in the provisions. The committee needs to be complimented for appreciating the burden that taxpayers currently bear, and suggesting measures to eliminate or reduce it. One only hopes that its suggestions, once finalised, are implemented in the forthcoming budget. That would really demonstrate the government’s commitment to fair tax laws.

Gautam Nayak is a chartered accountant.
Source : Livemint