Though some safeguards were provided for large taxpayers, it is to be seen how these pans out
Finance Minister Nirmala Sitharam presented the Union Budget 2021-22 under an extremely challenging, pandemic-induced circumstance. While some segments of the society have been able to withstand the impact of COVID-19 quite well and have also thrived, some sectors are in deep financial trouble. Their existence is in doubt, while the country's fiscal deficit has increased on account of lower revenue and higher expenditure. There was a general expectation that the Budget will propel the economy back to normalcy in the shortest possible time.
Nevertheless, the Finance Minister has carried on with her theme of continuity, certainty and ease of compliance in her budget proposals.
Thankfully, there are no new taxes in the Budget. She has continued with the same tax rate and has not tinkered with capital gains tax or introduced a COVID levy as was widely speculated. This should bring joy and relief to taxpayers.
An interesting proposal in the Budget was to reduce the time limit for reopening assessments from six to three years. Drastic changes were also proposed in the reasons for reopening assessments.
For small taxpayers, this will reduce the time for finality in tax proceedings. However, for large taxpayers, this was increased to ten years from six years. Though some safeguards were provided, it is to be seen how these pans out.
Earlier, the government had introduced the concept of Tax Collected at Source (TCS). Now the government has introduced TDS (Tax Deducted at Source). However, TCS will not be applicable in cases where it is deducted at source. It is difficult to find the rationale behind its introduction. It will most probably lead to an avoidable increase in the cost of doing business.
The Finance Minister's intent was to make compliance easier for small and medium taxpayers. As part of 'ease of compliance', income tax return forms will be prefilled with items like dividend, stock market transactions and interest earned from banks. This will help taxpayers file returns with accuracy.
Government has also proposed a Dispute Resolution Panel. This will be available for taxpayers filing returns on incomes lower than Rs 50 lakh and for an individual with disputed amounts lower than Rs 10 lakh. The panel can settle tax claims and also waive penalty or prosecution. As against this Government has proposed abolition of Settlement Commission. Large taxpayers will no longer be able to avail immunity from prosecution or penalty.
Government has also plugged many tax savings opportunities which were available following various court decisions. Some of these include slump exchange, depreciation on goodwill, tax-free amounts paid to partners on retirement, or a partnership firm's dissolution.
On an overall basis, the Budget does show quite a promise on many fronts.
The author is a Senior Partner at N A Shah Associates
DISCLAIMER: Views expressed are the author's own. Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.