Budget 2024: Dhak, dhak Viksit

Union Finance Minister Nirmala Sitharaman

Several phrases entered the lexicon as Finance Minister Nirmala Sitharaman presented the interim budget on Thursday. Headlining her presentation was the vision for Viksit (developed) Bharat by 2047. In pursuit of this, there was a four-pronged focus on Yuva, Mahila, Anandatta, and Garib. There has been a substantial increase in the average real income of people by 50 per cent, liberating over 25 crore individuals from multi-dimensional poverty.

The FM has tabled the Interim Budget, Vote on Account and certain key aspects that need to be refreshed and updated in the absence of fresh proposals. The reasonable tax rates - corporates at 22 per cent, professionals with thresholds of Rs 75 lakh, small businesses with threshold revenue of R3 crore being taxed on a presumptive basis - effectively is the platform on which the ‘Reform, Perform and Transform' is happening.

Doubts put to rest

The technical inclusion of the amendment in regard to travel agents requiring to collect TCS at 20 per cent on cost of overseas tours exceeding R7 lakh per person, per financial year puts to rest any questions about its applicability. This amendment has confirmed the tax payer's apprehensions.

As per amendment in the Finance Act 2023, travel agents booking foreign tours were collecting 20 per cent TCS on every booking irrespective of the cost of the foreign tour. However, the CBDT clarified by circular No 10 of 2023 that TCS at 5 per cent to be collected up to R7 lakh and 20 per cent on travel exceeding R7 lakh, but there was no such amendment in the Act.

The said amendment has been proposed to be inserted vide Finance Bill 2024. There were further clarifications on collecting TCS by seller provided by the aforesaid circular, which has now been amended in the provisions of Section 206C of the IT Act, 1962.

Demands due

Almost one crore assessees have faced small demands for years since the enactment of the Income Tax Act 1962. These demands created unnecessary hardships regarding their payment or adjustment against refunds of other assessment years. This led to unnecessary paperwork and monotonous procedures.

To improve tax payer service, it is proposed to withdraw a large number of petty, non-verified, non-reconciled or disputed direct tax demands up to R25,000 till FY10 and R10,000 for FY 2010-11 to 2014-15. The outstanding tax demands were creating a hurdle in refunds issuance to taxpayers, as the Income Tax Department was not processing complete refunds for the ongoing assessment year, if the taxpayers had pending demands from previous years.

We may need more clarity in the following scenarios:

1. What will be the position where the taxpayer has paid due to these demands prior to the FM's speech. Will the refunds be extended? If yes, then what will be the procedure for the claim?

2. What happens in the case of taxpayers' current refunds being adjusted against their old demands, resulting in lower adjusted refunds prior to such announcements? Will these taxpayers get such adjusted refunds along with interest on these adjustments?

3. Where current outstanding demands were higher than R25,000 or R10,000 and have now been reduced by adjusting refunds to less than R25,000 or R10,000, will this also be withdrawn, or will people be required to pay? What will be the scenario where such notices have been received by the assessees and there has been no revert?

4. Is the limit of Rs 10,000 or Rs 25,000 per year or in aggregate?

Loyal touch

We need to train our lens on the loyalty provisions. The start-ups designated by the Inter-Ministerial Board of Certification can avail tax deductions on their income for a period of three out of 10 years. This provision, originally having a sunset clause on March 31, 2024, has now been proposed to be extended by a year to March 31, 2025.

Entities set up in Gandhinagar GIFT City registered as ‘IFSC unit' for global business activities, entitled to tax deductions on their income for a period of 10 out of 15 years, have now had these exemptions extended for a year up to March 31, 2025. Through corporates and award shows, the Gift City continues to be the magnet for global connection.

Further, a corpus of Rs 1 lakh crore is being proposed to be allocated for scaling up research and significant innovation in sunrise domains, which will be established with 50-year interest free loan for innovation and start-ups programmes that combine the power of youth and technology.

Confusion continues

Then there are aspects where we expected clarity but instead have some confusion. There has been no clarification on non- resident status. Post COVID-19, there are global corporates with employees under the Work from Home model. This has created confusion about their residential status in India. There is no clear definition of: "for the purpose of employment" in the provisions of Section 6 of the IT Act, 1962. One expected clarification of the term "employment", which has not happened.

An increase in the number of medical cases means a non-resident may be needed to be present in India for a year or two. There was some expectation of clarification of status of such individuals and for them to be considered as non-residents, similar to those during lockdown in FY 2020-21 where Form NR was needed to be submitted to consider the status as Non-Resident.

Overall, it appears that the ship called India is sailing towards Amrit Kaal, yet it would be unrealistic to think that it will not have to weather storms and humongous waves on the way to its ultimate destination.

Dr Mitil Chokshi, senior partner, Chokshi & Chokshi, is a chartered accountant