The 2022 Union Budget is fast approaching and as always all eyes are on the Union Finance Minister for action to boost industry and provide relief to help overcome the pandemic.
While Corporate Inc.’s wish list is indeed long, some of the top requests include:
Reduced corporate tax rate of 15% for all sectors
The benefit of a reduced corporate tax rate of 15%, which is available in the case of new domestic manufacturing companies, should be extended to all sectors, including the service sector. This will bring parity in the tax treatment of the different sectors. Also, this benefit should be tied to a new investment rather than a new entity per se. This change will remove the need to create additional entities to receive this benefit.
Under current arrangements, the current deadline to commence manufacturing/production to benefit from this reduced corporate tax rate is March 31, 2023. This expiry date is expected to be extended until at least March 31, 2025 This would provide relief in any cases where projects have gotten delayed due to the pandemic and resulting lockdowns and restrictions.
Also, the MAT provisions could be removed, or at least the MAT rate could be further reduced to relieve taxpayers.
Incentive for job creation
Currently, the law allows an additional 30% deduction for the cost of new hires, for three tax years, to encourage job creation. However, this benefit is not available to employees whose emoluments are above INR 25,000 per month. It is desirable to revise this threshold to 50,000 INR. This will further stimulate employment by incentivizing job creators.
Support COVID-19 relief measures
The Income Tax Act 1961 (“the Act”) puts an embargo on claiming a deduction for expenses incurred in connection with corporate social responsibility (“CSR”) activities. Given the ongoing pandemic, it is desirable that covid relief expenses in the form of CSR be allowed as a deduction in all cases.
The government had issued a press release last year to relieve taxpayers by waiving the amount received from the employer / any other person for the medical treatment of COVID-19 and the ex gratia payment received by members of the family upon the death of an individual due to COVID-19. It is desirable that appropriate legislative amendments be made to incorporate this relief into the statute book.
In the absence of these provisions, employers and employees have had to face several interpretive challenges to avail themselves of this relief.
Simplification of withholding tax (“TDS”) provisions
Over the years, the provisions of the TDS have become quite extensive and complicated.
There are several sections, thresholds and rates. This leads to many interpretation problems, leading to unnecessary disputes and litigation. As a result, taxpayers end up spending a lot of time and effort complying with these provisions. It is desirable that the government simplify and rationalize these provisions..
Some suggestions would include retaining sections that contribute a significant amount to overall recoveries, removing and consolidating sections that contribute an insignificant portion of revenue recoveries, reducing the number of rates and increasing thresholds, removing the overlapping TDS and withholding tax (‘TCS’) provisions, removing the need to issue TDS certificates and introducing the concept of a TDS ledger.
These changes would help reduce the compliance burden on taxpayers without having a significant impact on revenue collection.
The path to follow
Collectively, these changes can help boost business confidence, boost job creation, reduce the compliance burden and make it easier to do business in India.
About the Author: Vikas Vasal is Country Managing Partner, Grant Thornton Bharat.
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