In keeping with the convention, the Finance Minister announced no changes to the tax slabs or rates. All eyes are now on the upcoming general elections and the Union Budget later this year
Over the last month, we have read a host of wish lists from Union Minister Of Finance Nirmala Sitharaman’s Interim Budget from various sectors and industries. These wish lists came even though Interim Budgets, which are announced a few months before the general elections and are meant to cover the transition period between the current and new governments, are typically non-events.
Instead of making new announcements, an Interim Budget merely recaps major decisions taken by the present government over the last five years. Any new announcements could be seen as a populist move just before the elections. In keeping with the convention, Sitharaman also announced no changes to the tax slabs or rates; neither did she introduce any welfare schemes, in the Interim Budget tabled on February 1, 2024.
“Being a vote on account, no major changes were expected in the tax rates. All hopes are pinned to the Budget post elections,” says Divya Baweja, partner, Deloitte India.
Though no changes were made to the tax slabs, rates or schemes, taxpayers have found a mention, at least in the past three Interim Budgets, including the current one. In the 2014 Interim Budget, then finance minister P. Chidamabaram raised taxpayers hopes for a simplified tax regime when he mentioned the readying of the Direct Taxes Code (DTC). “We have also got ready a Direct Taxes Code that will serve us for at least the next 20 years. I intend to place it on the website for a public discussion without partisanship or acrimony. I appeal to all political parties to resolve to pass the GST laws and the DTC in 2014-15,” he said.
Subsequently, the next government, led by the Bharatiya Janata Party (BJP), brought in the GST law in 2017. The BJP government that won the next elections as well, brought in the new tax regime in 2020; not called the DTC, but the new tax regime meant to serve a similar purpose—of simplifying taxpayers’ lives by cutting down complexities and reducing the rates. Last year, Sitharaman made the new tax regime the default one, though allowing taxpayers to opt for the old tax regime. The new tax regime does not allow any deductions or exemption, unlike the old regime that nudges taxpayers to invest as well as save taxes.
The Interim Budget in 2019, presented by then finance minister Piyush Goyal, was no different, and addressed the taxpayers. Highlighting that the number of income tax returns filed has increased from 37.90 million in 2013-14 to 68.50 millon, showing 80 per cent growth in the tax base, that year, Goyal said, “I thank the honest taxpayers of India for reposing faith in our government. Let me assure them that we have used their contribution to serve the poor and create better infrastructure.”
During this period, taxpayers’ interface with the income tax department was simplified and became largely faceless, with a lot of processes moving online.
In the latest Interim Budget, Sitharaman highlighted that “over the last 10 years, the direct tax collections have more than trebled and the return filers swelled to 2.4 times.” Just like Goyal, she assured the taxpayers that their contributions have been used wisely for the development of the country and welfare of its people.
The only change that Sitharaman proposed was related to “ease of living and ease of doing business” and promises to provide significant relief to the taxpayers involved in tax disputes.
“There are a large number of petty, non-verified, non-reconciled or disputed direct tax demands, many of them dating as far back as the year 1962, which continue to remain on the books, causing anxiety to honest tax payers and hindering refunds of subsequent years,” she said.
The Interim Budget proposed to withdraw such outstanding direct tax demands up to Rs 25,000 for the period up to FY2009-10 and up to Rs 10,000 for FY2010-11 to FY2014-15. Sitharaman said this move was expected to benefit about 10 million taxpayers, a lot of whom may be senior citizens by now.
“The withdrawal of disputed tax demands is a welcome move as taxpayers facing such demands will get a breather of no recovery of such demands. Also, this will save them the time and cost to be spent on appellate proceedings,” says Baweja.
Gautam Nayak, partner at CNK & Associates LLP, a law firm, explains in detail. “The incorrect outstanding tax demands uploaded on the system by the tax officers has been an irritant for many taxpayers. Every year that a refund was due, they would get a notice asking why the refund should not be adjusted against the tax demands. They would have to respond each time explaining how there is really no valid demand outstanding and also file evidence supporting that. No action was being taken by the (income tax) department to delete such demands in spite of evidence being furnished, on account of the assessing officers not giving their concurrence in this regard. This nuisance would be reduced now for many taxpayers. In a sense, this is a cleaning up of the system of the tax department.”
However, given that there’s a cap on the tax demands to be settled, it may not solve the issue completely. “For taxpayers with larger demands, the problem will persist, and action needs to be taken to ensure that the system works properly and taxpayers are not unnecessarily harassed,” says Nayak.
The government has taken steps to resolve tax disputes earlier too. In 2020, it launched the tax dispute resolution scheme, “Vivad Se Vishwas”, to address the pending tax-related cases. It allowed taxpayers to settle the matter by paying the original amount and exempted them from paying the interest rate accumulated and the specified penalty.
All eyes are now on the general elections likely to be held in May 2024 and the Union Budget that the new government will propose.