NEW DELHI : The budget for FY22 sought to iron out tax policy and provide easy compliance for taxpayers while trying to keep tax rates safe. An important factor that will guide the tax administration going forward would be collecting information from third parties about transactions that will help the income tax department get taxpayers to comply, explains Pramod Chandra Mody, chairman of the Central Board of Direct Taxes (CBDT). in a post-budget interview. Processed excerpts:
While the income tax revenues forecast for fiscal year 22 exceeded the pre-pandemic level – which was recorded in March 2020 – the estimated corporate tax revenues for fiscal year 22 are below the pre-pandemic level. Why is it like that and how do you deal with it?
The corporate tax rate has been lowered significantly. Regarding income tax, the provision of information to the taxpayer in advance in the form of 26 AS (tax credit) coupled with simplifying processes and providing better services to taxpayers should result in a change in income tax for individuals with their tax obligations. By and large, this is behind the trend.
What direct tax goals did you aim for with this budget?
Tax security was one of the main objectives of this year’s budget. The period for reopening the tax assessment has been shortened and no new taxes have been added. All of these should give taxpayers that sense of security. Ease of compliance is another goal. This helps taxpayers submit their applications on time. It is a great thing to be able to manage tax matters in a transparent way from the comfort of your home without going to the income tax office. We try to provide the taxpayer with the best possible service that is feasible and possible. The taxpayer should feel motivated to comply with the voluntary laws.
But has the broadening of the tax base receded into the background?
The number of tax returns submitted has more than doubled compared to 2014. (The number of tax returns rose from 3.3 crore in 2014 to 6.48 in 2020.) Now that more details are reported by third parties, e.g. Bank rates, stock market transactions, etc, and this information is made available to taxpayers on the tax portal, along with the ease with which he can go through his filing and re-filing process, should all be a major motivator for voluntary compliance. This also helps us with pre-filling the return.
A liberal corporate tax rate with no tax incentives was offered in 2019, and a similar system followed for individuals. What was the answer?
The tax return is not over yet. It’s hard to say what the reaction was at that point. At the same time, people are expected to opt for the new regime as it simplifies the entire tax structure, apart from the lower tax rates, which are inherently encouraging for both businesses and individuals. We’ll have a clearer picture when the first filing season is over.
The new dispute settlement scheme proposed for taxpayers is available in cases where the disputed income is up to £10 lakh. Isn’t that a low threshold as the tax liability would exist in such cases? £3.3 lakh?
If you see the nature of the disputes, they mostly fell into the lower end of the tax bracket (small taxpayers). The system was introduced to provide a better opportunity for alternative dispute resolution. Since a lot of the disputes are in this bracket, we should first give them this opportunity and see the experience. This is the time when we can take a (new) call on the threshold.
Over the years, tax policy has been to remove tax breaks that complicated tax law and led to litigation. But now these are coming back, for example affordable housing. Isn’t that a U-turn?
No. In fact, the affordable housing tax break has been extended for another year due to the exceptional circumstances we are in. People couldn’t start their project or individual taxpayers couldn’t make the most of the package they were given during these difficult times. Just to support them, this relief was extended for another year. It does not contradict the basic principle of abolishing tax exemptions. A specific end date has been set for incentives.
The strategy of removing the dividend distribution tax (DDT) on companies and putting it in the hands of shareholders seems to have paid off. Your comments?
We made this change in the last budget. More importantly, in this budget we removed any minor irritations that were present about DDT. Tax prepayments were ironed out and foreign institutional investors were given contract rates. (Input tax liability only arises if a dividend is declared or paid out).
The US Commercial Agent (USTR) has described India’s 2% e-commerce countervailing levy as “unreasonable or discriminatory” and is a criminal offense under US law that allows redemption of trade concessions. Is there a change in thinking about this levy?
Why should there be? The need for a compensation levy arose due to changes in the business environment. Now you can do business in India without a physical presence and without giving the opportunity to tax what is rightfully part of the (local) jurisdiction.
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