The centre has announced a range of income tax measures which includes extended deadlines, suspending the recovery of taxes and quicker refunds to taxpayers, thereby improving their liquidity position
By Shashi Bekal
The Central Board of Direct Taxes (CBDT) through a notification on June 24, 2020, and the ministry of finance through a press release have provided the much-needed clarity and legislative sanction with regard to income tax (IT) reforms proposed in the light of Covid-19. On May 13, 2020, the finance minister announced details of a Rs 20-lakh crore economic package. The sum is equivalent to 10 percent of India’s GDP and is expected to push it towards being atmanirbhar.
The Organisation for Economic Cooperation and Development on March 16, 2020, outlined a range of emergency tax measures that governments could adopt to curb an economic fallout. This included extended deadlines, suspending the recovery of taxes, enhancement of services and communication and quicker refunds to taxpayers.
Most of the measures were adopted by the finance ministry through Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020. The ministry gave further relief to support the economy and benefit a wide array of sectors, including MSMEs, discoms, real estate, etc. The proposed tax reliefs were given in three major areas: extension of due dates, reduction in withholding rates and disbursement of tax refunds.
However, since the speech of the finance minister on May 13, there has been no legal sanction to those proposals, resulting in confusion among taxpayers and tax practitioners until the CBDT notification, titled “Taxation and Other Laws”, and the subsequent press release. The salient features of the proposed reforms under the Income-tax Act, 1961 are as follows:
- Extension of due dates: Due dates for filing of IT returns under Section 139 of the Act for assessment year 2019-20 will be extended to July 31, 2020. For assessment year 2020-21, the due date for filing IT returns have been extended to November 30, 2020. Consequently, the date for furnishing tax audit report has also been extended to October 31, 2020. The extension date will be favourable to taxpayers as normalcy can be expected to be restored by then. Further, this also postpones payment of taxes by a few months, thereby improving the liquidity position of taxpayers.
However, there will be no extension of date for the payment of self-assessment tax for those with a tax liability exceeding Rs 1 lakh. Delayed payment would attract interest under Section 234A of the Act.
- Deduction under Sections 54 to 54GB of the Act: Sections 54 to 54GB pertain to deduction on capital gains arising from long-term or short-term capital gains. According to these provisions, if the taxpayer reinvests the gains arising on account of transfer of a capital asset into another specified capital asset, he is allowed a deduction as per the respective section. However, there is a time limit within which such reinvestments ought to be made.
The date for making investment/construction/purchase for claiming rollover benefit/deduction in respect of capital gains under Sections 54 to 54GB had been extended to June 30, 2020. The same has now been extended to September 30, 2020. Therefore, the investment/construction/purchase made up to September 30, 2020, shall be eligible for claiming deduction from capital gains arising during 2019-20.
- Deduction under Chapter VIA-B of the Act: Chapter VIA-B pertains to deductions in respect of certain payments which are made available to a taxpayer on making such payments e.g. deduction in respect of life insurance premium, deferred annuity, contributions to provident fund, deposits under the National Savings Scheme, medical treatment, etc. The date for making various investment/payment for claiming deduction under Chapter-VIA-B, which includes Section 80C of the Act (LIC, PPF, NSC, etc.), 80D of the Act (Mediclaim), 80G (donations), etc., which was extended to June 30, 2020 has been further extended to July 31, 2020.
- Deduction under Section 10AA of the Act: This pertains to IT benefit or deduction for Special Economic Zones (SEZs) or such undertakings formed to promote exports and foreign investments in India. The date for commencement of operation for SEZ units for claiming deduction under Section 10AA of the Act has also been further extended to September 30, 2020 for units which received necessary approval by March 31, 2020.
- Furnishing of TDS/TCS statement under Section 200 or 203 or 206C of the Act: The date for furnishing of TDS/TCS statements and issuance of these certificates pertaining to 2019-20 has been extended to July 31, 2020 and August 15, 2020 respectively.
- Passing of Orders: December 31 is the due date for issuing orders under direct taxes and benami law. Also, due dates for passing orders have been extended to December 31, 2020. The date for passing of orders or issuance of notices by the authorities and various compliances under direct taxes and benami law which are required to be passed/ issued/made by December 31, 2020 has been extended to March 31, 2021. This is beneficial for the taxman and taxpayer as this will ensure smooth administration of taxes.
- Linking of Aadhaar with PAN: The last date has been extended to March 31, 2021.
- Vivad Se Vishwas Scheme: The last date for making payment under the direct tax Vivad Se Vishwas Act, 2020 was initially extended to June 30, 2020. It is now further extended to December 31, 2020.
- Reduction in Rates: In order to provide more funds to the taxpayer, the rates of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) have been proposed to be reduced by 25 percent. However, the reduced TDS rate is not applicable to payment of salaries and payment to non-residents. This reduced rate shall remain in force for 2020-21. It is estimated that this measure will release a liquidity of Rs 50,000 crore. For the ease of taxpayers and better clarity, the CBDT has provided a table containing revised rates of TDS/TCS.
- Interest Rates: Through an ordinance dated March 31, 2020, it was provided that reduced rate of interest of 9 percent shall be charged for non-payment of IT (e.g. advance tax, TDS, TCS), equalisation levy, Securities Transaction Tax and Commodities Transaction Tax which are due for payment from March 20, 2020, to June 29, 2020, if they are paid by June 30, 2020. Further, no penalty/ prosecution shall be initiated for these non-payments.
It has been clarified in the June 24 press release that the reduced rate of interest of 9 percent for delayed payments of taxes, levies, etc. specified in the ordinance shall not be applicable for payments made after June 30, 2020.
- Disbursement of tax refunds: It was proposed to disburse all pending refunds to charitable trusts, non-corporate businesses and professionals. This will improve liquidity in the hands of the taxpayers.
These policy initiatives are commendable. In essence, these reforms are aimed at either payments which are lagging or reduced to the government exchequer and the centre trying to refund taxpayer money to improve liquidity in the economy. The delay in statutory compliances will also give some breathing space to taxpayers.
However, there are still certain proposals made during the announcements, ie, deferment of the implementation of new procedure for approval/registration/notification of certain entities under Sections 10(23C), 12AA, 35 and 80G of the Act, which have not received legislative sanction. The absence of such legislative sanction creates confusion amongst taxpayers and tax professionals. It is hoped that these are addressed as soon as possible.
—The writer is a lawyer and chartered accountant