By Samir S Shah & Darshana Shah
Recently, the government introduced various measures to accelerate the growth of the Indian economy. Industry and the common man have lots of expectations from the forthcoming Budget 2013.
This article discusses direct tax issues and expectations from the budget.
The Finance Act, 2012 had marginally increased the basic exemption limit of the individual tax payer to Rs 2,00,000. The expectation is that the basic exemption limit should be increased to Rs 3,00,000.
A maximum deduction of Rs 1,50,000 is available for interest paid on housing loan. The property price and interest rates have increased substantially over years. There is a need to revise this limit of deduction.
Deduction for specified investments up to maximum limit of 1,00,000 is available under section 80C of the Income-tax Act, 1961 (‘Act’). The overall limit of deduction under section 80C should be increased for increase in tax savings and long-term investment.
Allowances like transport allowances, education allowance, etc. are exempt from tax up to specified limits. These limits are not changed since many years. These limits should be increased taking into account current inflation. Similarly, exemption limit of Rs.15,000 for reimbursement of medical expenses should also be increased substantially in view of soaring medical and hospitalisation cost.
Tax Rates applicable to Companies
To compete in the current global economic scenario, the corporate tax rate should be most competitive as compared to other nations. The corporate tax rate for domestic companies should be reduced from 30 per cent to 25 percent. Similarly, Minimum Alternate Tax/Alternate Minimum Tax rate should be reduced substantially to allow industry to better avail tax incentives and exemptions.
Expenses for earning exempt income
The most litigated issue by the corporates in the recent years is disallowance under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962. There are various controversies surrounding this disallowance. The major controversies are whether disallowance can be made where there is no exempt income, whether disallowance can be more than the exempt income, whether disallowance can be made where company has sufficient owned funds vis-à-vis investment made, whether disallowance can be made in case of investments held as stock-in-trade and so on. The need of the hour is that the Government should provide certainty to the corporates by clarifying these major controversial issues.
Another issue faced by the corporates is whether goodwill is an intangible asset and therefore eligible for depreciation. The Supreme Court in the case of Smifs Securities Limited has held that goodwill is eligible for depreciation. To avoid any further controversies, the definition of block of intangible assets should be amended to include goodwill.
Investment linked incentive
Investment linked incentive is allowed to a taxpayer engaged in the specified business. Loss arising in a specified business is permitted to be set off only against other specified business. Therefore, taxpayer does not get tax benefit until it earns profit in specified business. The intention behind introduction of investment linked incentive seems to be to allow deduction in the year in which capital investment is made.
In view of the above, the loss of specified business should be allowed to set off against profits of any other business carried on by the tax payer.
Minimum Alternate Tax on SEZ developer /units
Minimum Alternate Tax (MAT) is now levied on Special Economic Zone (SEZ) developers and units. MAT should be withdrawn as it is against the policy announced by the Government through SEZ Act.
Claim made during the assessment proceedings
The claims made during the assessment proceedings are rejected by the tax authorities based on a Supreme Court decision in the case of Goetze (India) Ltd. It causes undue hardship to the taxpayers.
It should be clarified in the Act that the tax authorities are bound to allow the legitimate claims of the taxpayers made during the course of the assessment proceedings.
Samir S. Shah is Senior Manager and Darshana Shah is Deputy Manager, Deloitte Haskins & Sells.
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Updated Date: Feb 27, 2013 17:49:40 IST