However, many of these benefits were accompanied by an important precondition: namely participation in the new tax regime for natural persons. And there are some changes that are bound to leave some sections deeply unhappy. So what are some of the key elements that have been left out, contrary to our expectations? Let’s take a closer look at three major shortcomings of this budget.
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New Personal Tax Regime (NPTR): Most of the beneficial tax arrangements like the higher basic exemption limit from Rs. 2.5 lakh to 3 lakh, tax slab streamlining, peak surcharge cut from 37% to 25%, 100% tax refund income limit from Rs. 5 lac to Rs. 7 lac are all marked with NPTR. So far, most people still opt for the old tax regime like popular exemptions and deductions like HRA, LTA, EIA chapter deductions (covering PF, PPF, insurance premiums, medical insurance, NPS contributions, etc.) as these are important items of spending for the common man.
While the government wants to simplify the tax regime and continue with NPTR only in the future, banning exemptions and deductions under this regime may not help achieve this goal quickly. Also, knowing that the low- and middle-income group largely invest their money in different options for saving and investing, eliminating deductions and exemptions under the NPTR will discourage them. Just as the FM introduced the standard deduction into the NPTR for employees, introducing these existing deductions into the NPTR along with a sunset clause could have been a more fruitful approach.
Taxpayers need to smile…thumbs up from me for the budget: Ishita Sengupta
Earnings (GC) tax: The provisions relating to the GTC urgently needed simplification. Factors such as different asset class, holding period, multiple tax rates, indexation/presumption/grandfathering arrangements, criteria for exemptions, reporting requirements, etc. they play a vital role in calculating the correct income and taxes, but are very difficult to understand. Streamlining and simplifying this range of provisions could have helped taxpayers calculate income and resulting taxes correctly and easily.
Procedural issues: As we all know, the Government of India has taken various measures to make tax compliance easier for tax payers. Compulsory online filing, linking Aadhaar and PAN, faceless and online assessment procedures, linking bank accounts with PAN for faster refund processing, easy access to personal data via Form 26AS, AIS, etc. – all of these measures have resulted in a significant reduction in the average return processing time from 93 days to 16 days! As the FM mentioned, 45% of returns are processed within 24 hours these days. This is no mean feat and it makes a real difference to taxpayers.
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Now is the time to move forward to the next level of change. There are practical challenges faced by taxpayers in complying with all requirements. The algorithms set up in the department’s technology and software do not adjust to the different and unique situations taxpayers might have during filing or other compliance procedures. For example, Tax Residency Certificate (TRC) is a must to avail tax treaty relief, but in a situation where the TRC is not issued by the foreign jurisdiction, taxpayers face real difficulties in claiming this relief. This goes against the spirit of double taxation agreements, where India is a signatory to the protocol agreed with another country.
Another situation is the form 67 e-verification for an individual who has already left India and does not have access to the available e-verification arrangements. It is impossible for such a person to go through the online steps required by the software. Again, where the Overseas Tax Return is not available before the India Tax Return Due Date/Review of Tax Return due to the time difference between the two countries, the taxpayers cannot apply for the credit foreign tax, which is due to them by right. The government needs to look into them urgently.
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This year’s proposals are clearly aimed at simplifying and reducing administrative time for taxpayers, employers and tax authorities on compliance procedures. Some of the above points would add to this goal. We hope this is a timely enough invitation to the government to take the necessary measures in this regard.
(Ishita Sengupta is Partner and India Leader at Vialto Partners. Manavi Gupta, Associate Director and Sagar Dhamija, Manager also contributed to the article. Opinions expressed are their own)
