Suggestions for Union Budget 2024-25 in Direct Tax Domain

S. No.
Issue
Justification

1.
Re-insertion of Section 282B in the Income Tax Act
Resolve of DIN controversy
In order to sanctify the legislative intent of the Ministry of Finance in bringing the mandate of compulsory quoting of DIN in all notices and requisitions, and the binding nature of the said CBDT Circular No 19/2019, in real and effective terms, it is desirable that the erstwhile section 282B, is being re-inserted in the Income Tax Act, with retrospective effect from 1.10.2019, and the CBDT own Circulars are not being undermined, contested and challenged by the learned ASG before the hon’ble Supreme Court in the ongoing cases.

2.
Inclusion of delayed payment to medium and small enterprises before the due date of return filing, in the proviso to section 43B of the Act
The inclusion of delayed payment to medium and small enterprises before the due date of return filing, in the proviso to section 43B of the Income tax Act is desirable and needed so as to bring parity in the allowability of such expenditure vis-à-vis other expenditures, and to provide the balancing act between commercial considerations and timely payments.

3.
Allowing Deductions in respect of House Rent Allowance (HRA) & Interest on Home Loan in New Personal Taxation Regime in Section 115BAC
The restriction pertaining to the mandatory requirement of forgoing of HRA deduction u/s 10(13A) by the salaried individuals and the deduction u/s 24(b) in respect of interest paid on home loan taken for self-occupied property, for availing the benefit of reduced personal tax rates in section 115BAC, is acting as the main deterrent for such individual taxpayers, to switch to the new personal taxation regime.
The Government also wants more and more assessees to switch to the new regime, to reduce the complexities in return filing and assessments arising out of the plethora of deduction claims of the assessees applicable in the old regime.
Therefore, an appropriate amendment in section 115BAC is desirable to be considered by the Law Makers in the upcoming Union Budget 2024, so as to provide for the allowability of HRA Deduction u/s 10(13A) and Interest paid u/s 24(b) for home loan taken in respect of self-occupied property, in the new personal taxation regime.

4.
Increase in the Child Education Allowance & Hostel Expenditure Allowances Exemption Limits & Allowability of the same in New Tax Regime:
The current exemption limits in respect of Child Education Allowance is Rs 100 per child per month and in respect of Children Hostel Expenditure Allowance is Rs 300 per child per month, for a maximum of two children in a nuclear family. These exemption limits in respect of the basic necessity of primary education of the child, have not been revised since a very long-long time. Thus, there is a dire need to revise these exemption limits in respect of Children Education Allowance and Hostel Expenditure Allowance, in line with the realistic and currently prevailing cost inflation index pertaining to education in primary schools and hostels.
Further, like the house rent, the child education expenditure is a basic necessity, and as such must also be allowed in the new personal tax regime of reduced tax rates.

5.
Restoring of the Domestic Withholding Tax Rate on Royalty & Fees for Technical Services (FTS) of 10% from the increased rate of 20%
The rate of domestic withholding tax rate on Royalty and FTS payments has increased from 10% to 20% plus applicable surcharge and cess w.e.f. 1.4.2023. Practically at the ground level, the domestic Indian entities are bearing this increased burden, due to the grossing up of withholding tax liability clause in their agreements with the foreign parties. It is noteworthy to understand here that the Finance Act 2015 had reduced the domestic withholding tax rate on royalty and FTS from 25% to 10% in order to reduce the hardship faced by small entities. The then Finance Minister late Sh. Arun Jaitley in his budget speech had justified the said reduction to facilitate technology inflow to small businesses at low costs. The said justification for the reduced withholding tax rate of 10% still holds good. Also, the increased withholding tax rate of 20% is infact acting as a deterrent in revenue collection, as foreign entities are now more inclined to avail DTAA benefits, which in turn is increasing litigations and tussles. Hence, it is practical and desirable that the domestic withholding tax rate to be restored to 10%.

6.
Fixing Time Limit for Passing of Appeal Orders by CIT/JCIT(Appeals) & Ensuring Meritorious Adjudication & Disposal of Appeals
Our hon’ble PM has announced the launching of the Scheme for Faceless Appeals, way back on 25.9.2020, and subsequently all the pending appeals before the jurisdictional CIT(Appeals) as well as the new appeals have been transferred to the National Faceless Appeal Centre, for adjudication and disposal.
However, even after the lapse of three and a half long years, such appeals are still lying pending undisposed off by the National Faceless Appeal Centre. The Finance Act 2023 has enabled the creation of an additional first appellate authority/cadre of JCIT (Appeals) to ensure faster disposal of small value appeals. But practically the quality of the appeal orders being passed by this new cadre/appellate authority has been found not to be of the expected standards of proficiency and are more or less pro-revenue. In many cases, even the mandatory opportunity of being heard through video conferencing (VC) is not being granted to the appellants. In other cases, where the VC has been granted, but even after the elapse of substantial time period after the VC hearing, no orders have been passed by the first appellate authority. The appellants have even filed and uploaded their appeal submissions multiple times in the appeal response window of E-Proceedings, but with no response from the concerned appellate authorities. Even the link for mandatory virtual hearing has also not been made available yet in many such pending appeals, in the appeal response window. This is resulting in undue financial hardships to the appellants, because there are many cases of high-pitched assessments, wherein atleast 20% of the demand has been coercively recovered, but the appellate relief is still not coming.
The existing subsection (6A) of section 250, provides the discretion to the CIT(Appeals) that he/she may hear and decide the appeal, within a period of one year from the end of the financial year in which such appeal has been filed by the appellant.
Thus, there is an urgent need to make suitable amendment in subsection (6A) of section 250 of the Income tax Act, and to replace the word ‘may’ with ‘shall’ so as to convert this discretionary requirement of adjudicating the appeal within a period of one year, to the mandatory requirement of Law.

7.
Resolve of Contradictory Share Valuation Rules for Investor & Investee
Currently, the prescribed valuation criteria in section 56(2)(viib) read with Rule 11UA(2) applicable for the investee company and in section 56(2)(x)(c) read with Rule 11UA(1)(c)(b), for the investor, are contradictory to each other.
While section 56(2)(x)(c) requires the Investors to acquire shares at a value equal to or higher than the Fair Market Value (FMV) of such shares, section 56(2)(viib) requires the Investee Company to ensure that the shares are not issued at a price higher than the FMV. Both sections provide for an opposite approach for investors and investee company respectively, and the valuation mechanism are also different.
For the purpose of section 56(2)(x), in the hands of investors, the shares are to be valued as per adjusted Net Assets Value (NAV) based on the circle rates of the underlying land & building, as per Rule 11UA(1)(c)(b) and for the purpose of section 56(2)(viib), in the hands of investee company issuing shares, there is a choice between absolute NAV based on historical acquisition costs of land & building and DCF method of valuation, as per Rule 11UA(2).
On account of the said different and contradictory prescribed valuation criteria for the investee company in section 56(2)(viib) and for the investor in section 56(2)(x)(c), practically, the investee company is left with no other option but to adopt DCF method of valuation, in order to ensure that the issue price of shares is higher than or equal to the FMV based on adjusted NAV (circle rate of land & building), computed as per Rule 11UA(1)(c)(b) to ensure simultaneous compliance with section 56(2)(x) of the Act, in the hands of investors.
And when the investee company adopts such DCF method of valuation, the revenue authorities tend to look upon such valuation with suspicion and doubt and more often than not, such cases are picked up for elaborate scrutiny and often end up in costly, time-consuming and cumbersome litigations.
Thus, there is an urgent need to make suitable amendments in the existing different and contradictory share valuation rules for the investor and investee. In the existing Rule 11UA(2) for the investee company issuing shares, u/s 56(2)(x), instead of stipulating the share valuation based on the historical costs of underlying land and building, the uniform rule of allowing valuation based on the circle rates of the underlying land and building in the NAV method should be prescribed.

8.
Reduction in Allowable Time Period of 7 years for Issuing Notice for TDS Verification and Passing Order considering Assessee as an Assessee in Default u/s 201/201(1A)
Currently, the allowable time-period for issuance of Notice and passing of TDS verification Order u/s 201(1)/201(1A), continues to be seven long years from the end of the financial year in which the corresponding expenditure has been booked by the assessee, or two years from the end of the financial year, in which rectified TDS return has been filed, whichever is later, by virtue of section 201(3) of the Act.
This allowable window of seven long years of available time period with the income tax authorities in the TDS charge, is clearly in contradiction to the well-intended and sincere efforts of the law-makers in bringing in the much-needed stability and certainty in the taxation regime.
Practically, this TDS verification window under section 201/201(1A) is turning out to be nightmare for the businesses by asking the assessees to furnish the plethora of records and documents and the bulky and cumbersome reconciliations, after the elapse of seven long years, even when the regular assessment for that particular financial year has been concluded long ago.
Further, this TDS verification exercise u/s 201/201(1A) is still being conducted in manual mode, and not in the faceless manner, and even the DIN Nos are mentioned manually on Notices u/s 201/201(1A) and the authentication of same in the Income tax portal often brings no effective results.
So, its high time that the Law Makers actually ‘See this Big Elephant (TDS verification) roaming freely in the Room’, and take due cognizance of the undue hardships being faced by the taxpayers and fix the time period for issuance of TDS verification Notice u/s 201/201(1A) to be three months from the end of the financial year to which the corresponding expenditure pertains, and the time period for completion of such TDS verification and passing of Orders u/s 201/201(1A) within a period of 9 months from the issuance of corresponding Notices, in line with the time period for completion of regular assessments.

9.
Rationalisation of the Reporting Clause 44 in Tax Audit Report (TAR)
The reporting clause 44 in the Tax Audit Report mandates breaking up of total expenditure incurred by the auditee company into GST and Non-GST expenditure and further GST expenditure into GST Registered/Unregistered & Composite Dealers.
Such voluminous and cumbersome mandated reporting in Clause 44 of TAR, has no effect on the allowability or disallowability of such expenditure in the computation of income, and is only acting as a serious compliance burden without any consequential benefit.
Therefore, this unwanted and undesirable reporting burden in clause 44 of TAR needs to be withdrawn, to ensure ease of compliance and ease of doing business.

10.
Measures for increasing Disposable Income
Rationalizing the advance tax instalments mandating the payments of 25%-50%-75% instead of the existing 60%-75%-90%, extension of similar benefits of reduced tax rates u/s 115BAA & 115BAB to firms and LLPs, extending the benefit of presumptive taxation u/s 44ADA to partners of firms and LLPs, can result in increased disposable income for consumption, both in the hands of individuals and corporates and thereby augmenting the demand for the revival of the economy.

11.
Measures to Boost Real Estate Sector
Increasing ‘safe harbour limit’ from the present 10% to 20% permanently in sections 50C, 43CA & 56(2)(x) can help a lot in boosting the real-estate sector.