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Business News/ Money / Personal Finance/  Budget fails to give significant relief in the form of taxes or procedure
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Budget fails to give significant relief in the form of taxes or procedure

The budget has, in fact, increased the complexity of the taxation process

Photo: iStockPremium
Photo: iStock

This year’s budget reflects the government’s fiscal compulsions. While seeming to give an option of a substantial reduction in tax to individuals with income up to 15 lakh, in reality, most individuals would be better off under the existing tax regime, given the fact that they would lose exemption for most allowances, standard deduction, deductions for interest on self-occupied house, Section 80C for investments, for mediclaim, and for own contribution to the National Pension System (NPS). The worst part is that salaried taxpayers would have to make a parallel computation each year to decide on the better option.

The one big bang change is the elimination of dividend distribution tax, and the consequent taxation of dividends and mutual fund income in the hands of investors. This would be beneficial for most investors. There would now be no differential tax rates for debt schemes as against equity schemes, but you would now need to review your dividend option versus the growth option of your mutual fund schemes to decide which is more beneficial. Also, though you can now claim expenses against dividends or mutual fund incomes incurred to earn those, the expense can only be of interest and to the extent of 20% of such income. This restriction totally defies rationale.

Another change for mutual fund units is in respect of units allotted on side-pocketing, where the date of acquisition of the units of the side-pocketed scheme would now be the same as that of the original units, while the cost would be proportionate to the net asset value (NAV) that is transferred to the side-pocket. These provisions are similar to the provisions for shares received on demerger of companies.

Foreign tours will now attract a larger outgo in the form of tax collected at source (TCS) of 5% by tour operators. Remittances over 7 lakh under the Liberalised Remittance Scheme will also attract TCS of 10%. This tax can, of course, be ultimately adjusted against your total tax liability, but will have to be budgeted for at the time of payment.

The amendment relating to taxability of employee stock options (Esops) in case of startup employees is also quite complicated. While the taxability of the perquisite continues to be the year of exercise of the Esop, tax would be deducted at source by the employer either four years from exercise, at the time of sale of the shares, or on the date of leaving employment, whichever is earlier. Therefore, the employee would include the perquisite, but not pay tax on it till such time as the earliest of these three dates. Therefore, there would be a tax demand against the employee, which does not have to be paid till that subsequent year. One wonders whether the tax department’s systems will be able to deal with this complexity, or whether the employee will keep on receiving notices for payment of such taxes in the meanwhile.

Non-resident Indians or Overseas Citizens of India will now have to spend less time in India each year with their friends and relatives. So far, even if they visited India for up to 182 days, they did not lose their non-resident status. This period is now reduced to 120 days. Indian citizens who are not liable to tax in any other country would now be regarded as residents of India, with their worldwide income being taxable in India. Such citizens working in countries where there is no income tax law at all may face some litigation in this regard, through the intention does not seem to be to tax such citizens.

The extension of the faceless process from assessment to penalties and appeals is perhaps a little premature. It would have been far better to have waited and seen how successful faceless assessments prove to be. Besides, in penalty and appeal proceedings, today one has a chance to be heard and to explain and remove any misunderstandings which may have occurred during the faceless assessment process. Denial of the opportunity of hearing may result in denial of justice to a taxpayer, with significant impact on payment of the full demand.

All in all, this budget has failed to really provide the expected significant relief to taxpayers, either in the form of taxes or procedure, and has, on the contrary, increased the complexity of the taxation process.

Gautam Nayak is a chartered accountant

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Published: 03 Feb 2020, 04:23 PM IST
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