1. Tax on dividend income

Following amendments are suggested in regard to scheme of taxability of dividend in the hands of shareholders:-

(a) In order to give relief to small shareholders, provisions of section 80L which were earlier providing for exemption upto Rs.12,000/- of dividend and income from mutual funds in the case of individuals and HUFs should be re-inserted, which section was amended and subsequently deleted for the reason that income from mutual funds and dividend was exempted from taxability.

(b) Rate of tax in case of residents should also be the same as is provided in case of non-residents and foreign companies u/s 115A of the Act of 20%. Non-residents and foreign companies are eligible to pay tax even at the rate lower than 20% as per provisions of DTAA of respective country. Concessional rate is justified for the reason that payment of dividend is out of tax paid profit of the company and it results in double taxation, which fact was also acknowledged by the Finance Minister while removing the tax on dividend income in 1997 and a concessional rate of 10% was provided on dividend distribution by the companies by inserting Section 115-O in the Act.

(c) It appears through an oversight necessary amendment has not been made in Part II of the First Schedule to Finance Bill to insert rate of TDS on investment income in case of non-residents, other than Indians and in case of foreign companies. In this regard necessary clause needs to be inserted in clauses 1(b)(ii) and in clause 2(b) of Part II of above Schedule.

(d) In order to avoid litigation it should be provided that dividend income is assessable under the head 'Profits and Gains of Business or Profession' rather than under the head 'Income from Other Sources' in case of assesses engaged in the business of investment and trading in shares and securities. Allowability of expenses incurred by such assesses should be determined on the basis of provisions applicable to business income. In case of other assesses same may be considered under the head 'Income from Other Sources'.

(e) In the alternative to suggestion made herein above in (d), there should be no restriction on allowability of expenses and same should be determined on the basis of principles applicable for deduction u/s 57 of the Act as has been the position prior to the scheme of exempting the dividend in the hands of shareholders. Accordingly, Proviso proposed to be inserted in section 57 should be omitted.

In short, it is suggested that position as was prior to introducing the scheme of exempt dividend should be brought in.

2. Taxability of contribution to PF, Superannuation and NPS in excess of Rs.7,50,000/-

It is suggested that instead of imposing an overall limit, it may be provided that :-

1. In case of employees drawing salary beyond a particular limit, employer's contribution to PF will be exempt upto 10% instead of general limit of 12%.

2. In case of above referred employees contribution made by the employer to NPS will be taxable in the year of contribution.

3. Contribution to superannuation fund in case of such employees can also be restricted to a lower percentage, if considered necessary.

4. Interest credited to the account of employee should continue to be exempt, subject to the percentage notified.

Above amendments will simplify the procedure and will bring the desired result without causing difficulty to low paid employees.
In case above suggestions do not find favour, in the alternative, it is suggested that:-

1. It should be specified what would be the sequence or proportion for considering the exempt limit of Rs.7.5 Lakh. This is necessary in order to determine taxability of accrued interest / income in subsequent years.

2. Necessary amendments should be made in relevant sections to provide that contribution of the employer and interest thereon already taxed in earlier years will not be taxable in the year of withdrawal.

3. Amendment in Section 6 to consider a non-resident citizen of India as deemed resident

It is understood that intention for inserting sub-section (1A) in section 6 of the Act is to tax Indian income in case of non-resident citizens of India at the rate applicable to residents and not to allow benefit of concessional or NIL rate. If it is so, it is suggested that:-

- Instead of amending the definition of resident in section 6, a new section be inserted in Chapter XII-A, which Chapter applies to non-resident citizens of India, to provide taxability of income earned from India at the rate applicable to residents.

Further, it is stated that clarification dated 02.02.2020 given by CBDT to the effect that income of bonafide workers in other countries is not intended to be taxed in India is not in consonance with the proposed amendment as in case of ordinary resident world income is chargeable to tax in India. Hence, as an alternative to above suggestion, necessary amendment be made in section 5 to provide that income earned by Indian citizens deemed as resident in terms of sub-section (1A) of section 6 of the Act outside India will not be taxable.

4. Alternate Rate of Tax in case of Individuals and HUFs- Section 115BAC

Providing an option will create lot of confusion to each of the assessee and does not appear to be providing substantial benefit to anyone. It is therefore, suggested that lower rates provided in section 115BAC should be applicable to all the assesses and few deductions, as may be considered appropriate, such as HRA u/s 10(13A), LTC u/s 10(5) may be withdrawn. This will make the system simpler.

In the alternative, in case of salaried employees, deduction u/s 16 of Rs.50,000/- should continue to be available for the reason that the Hon'ble Finance Minister, Mr. Arun Jaitley while re-introducing the deduction vide Finance Bill, 2018 had specifically stated in his speech that relief is warranted in case of salaried employees who are paying much higher average tax as compared to individual business taxpayers, including professionals.

5. Amendment in regard to powers of ITAT for stay of demand- Section 254

It is suggested that:-

- Amendment providing for the condition of 20% of demand should be withdrawn. ITAT being an Appellate Authority has inherent power of stay and same is exercised considering the facts and circumstances of each case.

- Alternatively, it may be provided that payment already made by the assessee should be considered for determining 20% of the demand payable.

- Restriction of 365 days for extending the stay should also be deleted and it should be left to the discretion of the Tribunal to extend the stay in justifiable cases. It will avoid unnecessary harassment and cost to assesses of approaching the High Court for the extension of stay.

6. Extending scope of TCS- Section 206C

It is stated that extending the scope of provisions of section 206C by inserting sub-sections (1G) and (1H) only for the purpose of getting information in regard to the transactions is not justified. These remittances are out of tax paid money. In the present day circumstances when all the information is available to the department on account of technological developments. Therefore, it is suggested that:-

1. Proposed provisions of sub-section (1G) should be dropped and the person making remittance under LRS may be required to give a declaration in the prescribed form, like Form Nos. 15CA and 15CB, giving therein PAN and/or a declaration that remittance is out of tax paid income. Authorized dealer may be required to submit a statement of such remittances to the Income Tax Department. Similarly, in case of purchase of foreign tour packages an assessee may be required to provide PAN to the travel operator and he may be required to submit a statement to the department giving particulars of the person purchasing the tour package, his address and PAN and also the amount paid by him.

2. Proposed provisions of sub-section (1H) should also be dropped. There is on basis or rationale to assume that transactions of sale by an assessee having turnover of more than Rs.10 crore to another assessee exceeding Rs.50 lakh will not be accounted for and will go unreported in the present day circumstances when all such persons are required to be registered under GST and all the transactions have to be mandatorily through banking channel.

7. Extension of TDS provisions to e-commerce transactions- Section 194-O

Considering the technological development and excess of information to the Department, compliance of TDS should be reduced as it is resulting in avoidable work load on the assesses as well as on the Department since in many cases refunds of TDS become allowable to the assesses. All the transactions are also through banking channels in view of provisions of Income Tax Act restricting cash payments exceeding Rs.10,000/- u/s 40A(3) of the Act. Further, a person can also not accept payment exceeding Rs.2,00,000/- in terms of section 269ST. Moreover, all the assesses having turnover exceeding Rs.40 lakh are required to be registered under GST. Therefore, TDS compliance should substantially be reduced by the Department. Hence, provisions of Section 194-O proposed to be inserted should be dropped.

8. Increase in Limit for Tax Audit- Section 44AB

Increase in the proposed limit from Rs. 1 crore to Rs. 5 crore subject to the condition that aggregate cash receipts and cash payments do not exceed 5%, may provide exemption to certain assesses who are doing business only through e-portal. This will give no exemption in case of other retailers and shopkeepers since in their cases it cannot be assumed that their aggregate cash receipts can be less than 5% in present days circumstances. It is, therefore, suggested that:-

1. General limit should be increased to Rs. 5 crores.

2. Limit should be provided of Rs. 10 crores in case cash receipts and cash payments do not exceed 20%.

The Department should follow the philosophy of trusting the assesses and therefore, accounts of the assesses should be relied upon particularly considering the circumstances that all such assesses are registered under GST and carry on substantial transactions through banking channel and Department has access to all the information.

9. Turnover limit in case of Start-ups - Section 80IAC

Limit of turnover is proposed to be increased from Rs. 25 crores to Rs. 100 crores in case of Start-ups to be eligible for deduction of profit for 3 years out of 10 years. It is suggested that:-

(a) In the interest of giving boost to the industry and to generate employment there should be no restriction of turnover and all Start-ups should be entitled for profit exemption.

(b) In fact, exemption should be extended to all newly set up businesses, may be in specified areas or specified nature of businesses.

10. Taxability of perquisite/benefit in respect of ESOPs in case of Start-ups

As per the proposed provisions it may be difficult to keep track by the employer as well as by the department of the tax liability payable on the ESOP as a perquisite/benefit and pay the same at the stages provided in section 191/192 of the Act. It is suggested that:-

1. Liability for payment of tax should arise only in the year of sale or in the year the employee resign from the service though same may be determined with reference to fair market value at the time of exercising the option.

2. In case of resignation it should be the liability of employer to deduct tax u/s 192 of the Act whereas in case of sale it should be the liability of the employee to pay tax by way of advance tax or tax payable on return.

The difficulty of cash flow for payment of tax at the stage of exercising the option is there in other cases also. Therefore, same provision should be applicable to all the employees.

11. Penalty for fake invoices- Section 271AAD

Section 271AAD is being inserted to levy penalty for fake invoices for the reason that it has come to the knowledge in the recent past that fake GST invoices were issued by certain persons without supply of goods. It is stated that just for the reason that there have been certain cases like this provision cannot be inserted in the Act which would impose enormous responsibility on the assesses to prove actual supply of goods and existence of parties at the time of assessment with reference to lot of evidences which may not be believed by the Assessing Authority and penalty proceedings may be initiated under the section. There are already provisions for levy of penalty for concealment of income u/s 270A of the Act. It is suggested that provisions should be dropped and philosophy of trust should be adopted.

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On the basis of sub-clauses (i) to (vi) being inserted in sub-section (1) of section 12A time limit within which application is to be filed by new trust is not clear. Sub-clause (vi) provides for any other case and application under this clause is to be filed at least one month prior to the commencement of the previous year relevant to the assessment year for which registration is sought. In the cases of new trusts, the time limit for filing application should be with reference to formation of the trust or within the previous year from which the registration is sought. This sub-clause needs to be amended accordingly.

There is no limit of the amount of donation in clauses (viii) and (ix) proposed to be inserted in sub-section (5) of section 80G of the Act for filing statement and issuing certificates to the donors. It would mean that statement and certificate in the prescribed manner is to be filed / issued even in respect of small donations received by temples, dharamshalas, gurudwaras etc. In respect of small amounts, even the donor may not be interested in claiming deduction u/s 80G of the Act. If the position is as mentioned above, provisions of section 80G needs to be amended to provide that deduction can be claimed in respect of the donations made beyond a particular amount, may be Rs.1,000/- and the statement is to be submitted only in respect of such donations. Certificate giving complete details is also required to be submitted in such cases.