Filings of returns to be compulsory for those making high-value transactions
The Finance Bill proposals are part of the govt’s strategy to boost tax collections for funding welfare schemes
New Delhi: Finance minister Nirmala Sitharaman’s first budget seeks to widen tax officials’ surveillance on transactions and people to prevent revenue leakages and improve compliance.
The Finance Bill tabled in Parliament by the minister is replete with proposals to expand the scope of income reporting as well as deduction of tax at source on transactions that otherwise go unreported.
The proposals are part of the Modi administration’s broader strategy to widen the tax base as the government seeks to boost tax collections to fund welfare proposals, including a scheme to expand income support for farmers.
The proposals to plug revenue leakages are expected to complement the revenue raising measures such as additional taxes on fuels and select imported items, and a surcharge on high-income earners.
The Finance Bill, which will be discussed in both the Houses of Parliament, proposes that those who enter into high-value transactions have to file returns even if their income is below the tax exemption limit. Accordingly, those who spend ₹2 lakh a year on foreign travel or consume electricity worth ₹1 lakh a year or have deposited ₹1 crore in a current account with a bank or co-operative society, have to file income tax returns even if their income is below ₹2.5 lakh.
The Bill also proposes that individuals, who pay more than ₹50 lakh a year for contractual work or for professional services, have to deduct 5% of the payment at source and remit to the government as tax. The move seeks to prevent tax under-reporting or evasion by contractors and certain professionals on their income, something widely noticed in the construction industry. The Bill proposes that gift of money or property that non-residents receive from resident Indians will be treated as income arising in India. The idea is to check tax exemption claims on account of the non-resident status of the receiver. According to law, gifts are taxed only in the hands of the receiver and non-residents are subject to tax only on their income sourced from India, not their global income.
The Bill proposes to make the reporting of financial transactions by banks and other entities more extensive in order to capture even smaller transactions in the economy. The Bill seeks to empower the government to add new institutions to a list of entities, including financial institutions, post offices and authorities registering vehicles responsible for reporting transactions to the tax department. The penalty provisions for default in reporting transactions are also proposed to be widened to cover all the entities. A statement explaining the provisions in the Bill said the intention was to facilitate pre-filing of income tax returns for people, covering even smaller transactions.
According to Amit Maheshwari, partner at accounting firm Ashok Maheshwary and Associates Llp, widening the tax base will remain the guiding principle for tax authorities. “Widening the tax rate is essential for making the tax rates more competitive," said Maheshwari.
Experts said that direct tax proposals in the Union budget offered opportunities for businesses to make their operations more tax efficient. Extending the lower corporate tax rate of 25% to businesses with annual revenue of up to ₹400 crore will allow businesses with different units to restructure them depending on their synergy and benefit from the lower tax rate, said Girish Vanvari, founder of advisory firm Transaction Square.
Sitharaman expects to collect ₹13.35 trillion in direct tax this fiscal, which represents a tax buoyancy of 0.9, indicating that tax collection growth will be slower than the economic growth rate.