10 June 2014 | Budget 2014 | Volume 1

With expectations running sky-high, India's newly elected government now has the tough task of coming up with a popular Union Budget. The Modi government that boasts a comfortable majority and is not dependent on disparate alliance partners for support is considered to be a business-friendly government. Even foreign investors are looking forward to the first budget to be presented by the new Finance Minister, Arun Jaitley.

As a run-up to this eagerly awaited event, SKP brings to you a series of Budget Primers where we will share our Budget Wish List over the next few weeks. We hope you find them interesting and useful. We look forward to your feedback. 

SKP Wish List
A. Personal Taxation
With rising inflation, several changes are required in the current deduction limits:
  • The slab rate for basic exemption of taxable income could be increased from INR 200,000 to INR 500,000 as the basic threshold limit has not seen a significant increase in a long time.
  • Standard deduction for salaried employees should be reintroduced in line with current inflation levels. Nominal allowances such as conveyance allowance of INR 800 per month, children's education allowance of INR 100 per month, etc. should be removed as they have completely outlived their utility.
  • In line with soaring real estate prices and high interest rates on borrowed capital, the limit for deduction of interest on capital borrowed for purchase of house property should be increased from the current INR 150,000 to INR 300,000.
  • The payment of the principal amount for a loan taken for acquisition of house property is currently available as a deduction under section 80C of the Income Tax Act, 1961 as part of the overall limit of INR 100,000. There should be a separate deduction for this to incentivise the purchase of a residential house.
  • The limit for deduction under section 80C should be raised from INR 100,000 to INR 200,000.
  • The amount of deduction under section 80GG (for those not claiming benefit of House Rent Allowance) should be raised from the current INR 2,000 per month to INR 10,000 per month.
  • The defence sector requires continuous investment in high-tech arms and ammunition. A new section can be introduced providing deduction for investment in defence bonds with a limit of INR 50,000.
  • The deduction currently available under section 80TTA for interest on savings bank accounts up to INR 10,000 should also be extended to interest on fixed deposits, with an enhanced limit of INR 20,000.
  • The presumptive provision contained in section 56 regarding gifting property, in case the property has been purchased at a value less than the stamp authority valuation, is quite harsh and does not take into consideration various factors such as distress sale, locality, condition of building, etc. This provision needs to be rationalised.
  • Surcharge and education cess should be removed.
B. Corporate Taxation
  • For foreign companies, capital gain arising on account of indirect transfer of assets in India should be made taxable prospectively and retrospective amendments should be withdrawn. Also, currently taxability in the hands of the foreign company arises if the shares in the foreign company derive "substantial" value from assets located in India. The term "substantial value" has not been defined and hence, should be clarified to avoid litigation.
  • Minimum Alternate Tax imposed on special economic zone (SEZ) developers and units should be withdrawn.
  • Earlier, SEZ developers were exempted from dividend distribution tax. This exemption should be reintroduced to encourage the development of SEZs in India.
  • Domestic transfer pricing regulations should not be applied in cases where both the payer and payee are paying tax at the maximum marginal rate.
  • A fair and quick system for granting TDS credit and issuing refunds should be introduced.
  • Taxation of share premium has become a vexatious issue with both over- and under-charging of premium being brought to tax. The provisions need to be liberalised considering valuation is a highly subjective exercise.
  • An exemption should be provided for companies plying airlines to specific tourist destinations.
  • "Goodwill", "brand" and "non-compete fees" should be included in the definition of intangible assets.
  • An express provision should be introduced for allowing deduction on account of expenses incurred on Corporate Social Responsibility (CSR) while arriving at taxable profits. Since CSR spending is now mandatory under the new Companies Act, 2013, a corresponding change is required in the Income Tax Act as well.
  • The sunset clause under section 80IA for the power sector should be extended for a further five years, at least with respect to rural electrification projects.
  • The deduction under section 80IA for cold storage plants should be revived to ensure an uninterrupted supply of food grain and thereby controlling inflation.
  • The conversion of a Company into a Limited Liability partnership is tax neutral if the turnover of the company in any of the last three years does not exceed INR 6 million. This limit should be done away with as it is holding back several entities from converting to the LLP structure.
  • The tax rate on royalty payments should be brought down from 25% to 15%.
C. General
  • There is an urgent need for a shift in the mindset of the tax authorities from being tax gatherers to tax administrators.
  • No penalty should be levied on additions/disallowances made in pursuance of retrospective amendments to the law.
  • Measures for accountability should be introduced if flimsy and baseless additions are made by Assessing Officers in assessments as this leads to undue hardship and increased litigation costs for taxpayers.
  • For payments made outside India after deduction of TDS, there should be a system for generating TDS certificates even when the foreign entity does not have a Permanent Account Number (PAN) in India.
  • Due to online processing, demands and notices are generated immediately by TRACES and CPC (Bangalore). Invariably, there are mistakes in the same. A strong mechanism needs to be in place for the immediate processing of rectification applications. 
  • In order to curb bureaucracy, officers' discretionary powers should be limited to a minimum.
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