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Tax Refunds - An Uphill Climb

Byte on while staying informed about the latest tax updates.


Hey,

Apple plans to shift a major chunk of it’s manufacturing from China to countries like India and Ireland instead of the US. Trump threatens to slap new taxes on Apple and other such companies. Will this hold back the American giants from venturing out and prove to be a major setback for India’s plan to woo multinational companies from China?

This is not it. India is already at her wits end trying to solve tax related problems within her own boundaries.



This Week’s Dose-

  • Companies demanding a Tax Certificate?
  • 25 Years of Direct Tax Collection
  • Tax on e-commerce firms CREATING A STIR

Companies demanding a Tax Certificate?

The proposal.

“Give us Tax Certificates instead of Tax Refunds if money is a problem,” companies tell the Government. Government has not been able to give refunds probably because of the cash crunch in these difficult times. Many companies are also struggling with the working capital. There has been a lot of the financial stress.

They want the government to allow loans on these certificates. The loans could be provided by banks that are flush with funds and at a very low interest rate of 1-2%. The Tax Certificate could be kept as collateral to give these loans and be treated as cheque discounting during repayment.

As the cash crunch starts hitting the operations hard, this could surely help businesses get access to liquidity.

The problem.

The government is open to that idea, since CBDT might be struggling to issue refunds (especially above INR 1 crore). This might put companies in a tough spot that have pending refunds amounting up to a few crores. Now, since the revenue cycle is hit, pedling its way to the working capital cycle, salaries of employees might take a hit.


25 Years of Direct Tax Collection


The Indian Tax system has seen endless changes. With the change in tax slabs and laws, the Tax Revenue collection has seen a steady rise. 

Here is a look at 25 years of Direct Tax collection in India. Corporate Tax is the largest contributor to Direct Tax.



Tax on e-commerce firms CREATING A STIR

A little bit of background

FinMin decided to charge an additional 2% equalisation levy on e-commerce activities based abroad starting from April 1, 2020. This was done keeping in mind to charge the more profitable economy. Thereby, increasing the Government’s revenue.

But this received a major push back from e-commerce big weights like Amazon, Google, Flipkart and Netflix which aren’t headquartered in India. They demanded a deferment from the Indian Government.

The crux of the matter

The e-commerce firms are of the view that this would only make matters worse. The businesses would require to make complicated changes to their internal systems, accounting and billing mechanisms in a very short notice.

The impact on multinationals will be wider than imagined. The definition of e-commerce operator and supplier varies from nation to nation. It has been unclear as to what kind of business model of a non-resident will qualify as an e-commerce operator.

The companies certainly need more ‘clarity’ about the new levy.

What are we looking at

Ever wondered why some companies are sending you invoices that originate offshore?

India wanted to ensure that multinationals conducting significant business be taxed. The heads behind this ‘new tax levy’ would have known that it was not going to be a smooth sailing. The 36-member OECD forum might affect India’s right to tax these companies.

The Finance Ministry is looking at deferring payments till September. That would be the 2nd quarter of this financial year.


A ‘Window Tax’ Darkened European Homes - Crazy Tax Story



In 1696, a window tax was introduced in England and Wales. It was assessed as a flat property tax plus a tax based on the number of windows a home had. As a result, some people bricked up their windows and new buildings were designed with fewer windows.

Looking at England, Scotland and France imposed similar taxes in the 1700s.

Talk about taxes' ability to darken a day!


Byte of the Day

"It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates."

–John F. Kennedy
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Atmanirbhar Bharat Direct Tax Update


Undoubtedly news of Covid-19 will become the schema of 2020 for most of us. Experts are already calling 2020 as the year for Social Distancing. Along with Social Distancing, there's another word that comes to mind i.e Recession. International Monetary Fund predicts that the world GDP for 2020 has already sunk by 3%. Economists worldwide have been waving red flags, and understandably countries are paying due attention to the looming financial mayhem. Many of which have already declared gargantuan packages for their Economies. Japan leads the way by an impressive package roughly 21% of its GDP. Optimistically enough, India Trails Japan by announcing an Economic Stimulus nearly 10% of India's GDP. Finance Minister Nirmala Sitharaman announced the details of the INR 20 Lakh Crore Economic stimulus on May 13, 2020. FM announced a handful of Direct Tax interventions Atmanirbhar Bharat Economic Stimulus to help India's Economy become more Self Reliant. Along with major announcements for the MSME sector, FinMin announced several high flying measures in the Direct Tax Genre.


Income Tax Return/Audit Due Date Extended

CBDT has claimed to received numerous messages from individuals and organizations alike for easing the Income Tax Return filing due date. And FinMin addressed these messages by extending the due dates for Income Tax filing for individuals/organizations and the last date to file their Audit Reports as well.

We sense that there's a lot of confusion regarding the due date for filing Income Tax Returns with and without Tax Audit. So, let us cut the clutter and clear the ambiguity for you.

ITR with Tax Audit Applicability


Audit Applicability Old New
Applicable October 31, 2020 November 30, 2020
Not Applicable July 31, 2020 November 30, 2020

The due dates for filing your Income Tax Returns with and without Tax Audit applicability have been shifted from October 31 and July 31 to November 30, 2020. This extension was highly anticipated as a commercial activity are halted. Along with this the due dates to file Audit Reports are also been extended from September 30 to October 31, 2020.

These extensions should provide much-required breathing space to individuals and organizations to complete their tax compliance on time.


TDS & TCS Update

Under the Atmanirbhar Bharat Direc Tax Measures, FinMin declared that Tax Deducted at Source(TDS) and Tax Collected at Source(TCS) Rates will be reduced by 25%. Notably, This reduction in TDS rates is temporary and effective from May 13, 2020 to March 31, 2021. Through this measure, FinMin claimed that liquidity of worth INR 50,000 Crore will be released, effectively relieving lakhs of financially bottlenecked Individuals.

The Government is hoping that the reduced TDS and TCS rates shall indeed boost the cycle of consumption and demand and keep Indian Economy buoyant. Refer to the table below for a detailed explanation of NEw Reduced Rates for the rest of FY 2020-21.


Section Nature of Payment  Old Rate  New Rate
192 Payment of Salary As Per Slab Rates  As Per Slab Rates
194 Dividend 10% 7.5%
194A Interest(other than interest on Securities) 10% 7.5%
194C Payment to Contractor/Sub-Contractor 1%/2% 0.75%/1.5%
194D Insurance Commission 5% 3.75%
194H Commission on Brokerage 5% 3.75%
194I Rent 2%/10% 1.5%/7.5%
194J Payment for Technical Services/Professional services 2%/10% 1.5%/7.5%

Here is the tweet by Income Tax Department regarding the reduction in TDS and TCS rates.

https://twitter.com/IncomeTaxIndia/status/1260629660196466688?s=20

Other Direct Tax Measures: Atmanirbhar Bharat

FinMin also declared that all pending Income Tax Refunds up to INR 5 Lakhs shall be issued immediately. This move shall positively affect close to 14 Lakh Taxpayers. However, considering the ambiguity of this announcement, it remains unclear whether these refunds are issued for individuals or organizations. Clarification is expected on this front.

Moving on, Nirmala Sitharaman also announced reliefs to those individuals under the Vivad se Vishwas Scheme. Period of the scheme for
making payment without an additional amount is extended to December 31, 2020.

In conclusion, it is safe to say that India's Economic Package is by far the largest among all developing nations. The Chief of the Global Economic Monitoring Branch, Hamid Rashid lauded India's 'impressive' stimulus package. He further cemented his belief that this package shall be able to reassure markets and to boost domestic consumption.

As India is gearing up for Lockdown 4.0, people are getting more and more anxious about the future. Surely, these measures will provide a much-needed adrenaline boost to our Economy.

Until next time.

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A Self Reliant India!

Byte on while staying informed about the latest tax updates.

Hey,

Seventy-five days after the Union budget – during which the world we live in has changed unrecognizably –  the Prime Minister announced a INR 20 trillion package. He called this “Aatm Nirbhar Bharat Abhiyan”. "Self-reliant India is the only path," he said. The idea is to respect the nation’s and individual’s inherent capabilities by which the problem will be overcome.

This Week’s Dose-

  • From STIFLING BINARIES to finding THE RIGHT MIX
  • Deadlines - “EXTENDED”
  • Tax everything that’s Chinese!!
  • Irish Artists are LUCKY - Crazy Tax Story!

From STIFLING BINARIES to finding THE RIGHT MIX

The Stimulus Package.

PM Narendra Modi on Tuesday announced massive new financial incentives on top of the previously announced packages for a combined stimulus of INR 20 lakh crore (USD 260 billion). According to our Finance Minister, Nirmala Sitharaman, this is not just a financial package. It is a “reform stimulus, a mindset overhaul and a  thrust in governance.”

Pretty inspiring, isn’t it? Hoping this package is not just “a headline and a blank page”

Expectations…

It was obvious that this was not going to be a “cash-out” package. It would be a combination of facilitating infusion of money into the economy through a variety of measures. It is definitely designed to extend a helping hand but not a fiscal stimulus, less so a bailout. The purse strings haven’t been loosened yet.

For those who assumed it to be a INR 20 trillion ‘cash package’, there will not only be devils, but quite a few demons in the detail.

The actual strategy!

The underlying strategy is to address liquidity. The important agenda is to leverage the money in the economy and make the most out of it. For individuals, the 25% reduction in TDS will help increase disposable incomes. GST refunds is an important missing element in this.

So far no level of liquidity control has been adjusted but the lock jammed wheels of commerce have been greased a bit.

The TAKE-AWAY

It is highly likely from the PM’s speech and the FM’s detailing that the Government has moved away from the stifling and silly binaries of lockdown versus ‘no lockdown’, lives versus ‘livelihood’ and stimulus versus ‘no stimulus’ to find THE RIGHT MIX.


Deadlines - “EXTENDED”

The package came along with a few anticipated deadline extensions. They are:

  1. Due date for all income tax returns for FY 2019-20 has been extended from July 31 and October 31 to November 30.
  2. Tax audit date has been extended from September 30 to October 31
  3. Window for making payments under the ‘Vivaad se Vishwas Scheme’ - a tax dispute resolution mechanism - without any additional amount has been extended till December 31.
  4. Pending income tax refunds to charitable trusts, sole proprietors, limited liability partnerships and cooperative societies will be issued immediately.

Finally, one less thing to worry about, i.e. IT-return.


Tax everything that’s Chinese!!

Let’s balance it out

What if a 10% Covid Tax is levied on China. It is a matter of intense thought but this can easily help India overcome the trade deficit and push the domestic industry. Our trade deficit was INR 4.1 lakh crore which is always a business of loss. And China has been using the WTO (World Trade Organisation) provisions to disregard Indian industry.

“There is a need for a special Covid Tax on Chinese products…,” said Sanjay Jaiswal, a BJP leader.

Overdependency on China- won’t work...

The modi Government is aware that overdependency on China might prove to be a disaster in the long run. The current crisis has taught us very well about the repercussions of being dependent. Since products from another country cannot be banned under the ‘free trade agreement’ , it is essential to increase the duties on Chinese products to restrict the imports. 

The ‘Make in India’ campaign should be aggressively promoted.

Killing two birds with one stone.

What many institutions and individuals are proposing in the times of dwindling economies is- to impose more tax on the citizens, especially the super rich. But what they might fail to understand is that, this would lead to a reduction in economic activity and stifle the job growth.. 

Instead of increasing the taxes on individuals, if the duties on Chinese products are increased, the country just might be able to boost the economy while keeping the imports from China to a minimum.

India could take a leaf out of Trump's book.


Irish artists are lucky - Crazy Tax Stories!

Want to be a starving artist? You might go a little less hungry if you find your muse in Ireland.

An exemption of 50,000 euros. Wait! What?

In order to boost the Arts, income earned by writers, composers, visual artists and sculptors from the sale of their works is not taxed - Ireland exempts up to 50,000 euros in profits from the sale of 'qualified' artistic work from income taxes.

Grants, awards, and prizes are also exempted if they are related to the artist's work.

Wondering how Irish judge art?

A work has cultural merit if: Its contemplation enhances the quality of individual or social life as a result of its intellectual, spiritual or aesthetic form and content.

A work has artistic merit when: Its combined form and content enhances or intensifies the aesthetic apprehension of those who experience or contemplate it.

Ireland can very well prove to be a ‘tax haven’ for artists.


Byte of the Day

"We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

- Winston Churchill
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Atmanirbhar Bharat: Economic Package 2.0 Direct Tax Measures Highlight


India went under a total lockdown on March 24. What previously was treated as a 21-day break soon turned into a new way of life. At present the number of days we have spent in our Lockdown is nearly 50. But Just when public opinion started shifting from 'Pro-lockdown' and 'Restart the Economy' PM Modi did it again. On May 12, he addressed the nation in his classic 8 PM addressing style. A gargantuan Stimulus Package of INR 20 Lakh Crore was announced along with Lockdown 4.0.

For quite some time, another Economic package was long called for from renowned Economists like Nobel laureate Abhijit Banerjee and ex-RBI Governor Raghuram Rajan. India's chief economic adviser K.V. Subramanian cited the steep recovery of the world economy after the Spanish flu of 1918-19. He further claimed that India Inc too could witness a 'V-shaped' recovery. Worth noting that the world wasn't forced in a Lockdown during the Spanish Flu and most Economic Activities were allowed.

On May 13, 2020, Finance Minister Nirmala Sitharaman gave the details of the Stimulus Package in a press conference.


Atmanirbhar Bharat Direct Tax Update

TDS Update


Income Tax Update

  • Due Dates for Income Tax return Filing for FY 2019-20 (AY 2020-21) extended from 31st July to 30th November.
  • Due Dates for Tax Audit Report for FY 2019-20 (AY 2020-21) extended from 30th September to 31st October.

Other Direct Tax Measures

  • All Pending refunds to non-profit businesses and professions including Proprietorship, Partnership, LLP, and Co-operatives shall be issued immediately.
  • Period of Vivad see Vishwas Scheme for making payment without additional amount will be extended to December 31, 2020.
  • Date of assessment getting barred on September 30, 2020, and March 31, 2021, shall be extended up to December 31, 2020, and September 30, 2021 respectively.

Other Important Measures

  • INR 2500 crore worth EPF Support for Business & Workers for 3 more months. 72 Lakh employees and 3.67 businesses to be benefited.
  • Statutory PF contribution of both employer and employee reduced to 10% from 12%.
  • INR 3 lakh crores worth Collateral-free Automatic Loans for Businesses, including SMEs. Loans to have a 4-year tenor with a moratorium of 12 months on Principal repayment.
  • INR 20,000 crores worth Subordinate Debt for Stressed SMEs. Nearly 2 Lakh MSMEs are likely to be benefited.
  • INR 50,000 crores worth Equity infusion for MSMEs through Fund of Funds.
  • Global tenders to be disallowed up to INR 200 crores.
  • INR 30,000 crore for Special Liquidity Scheme for NBFCs/HFCs/MFIs.
  • INR 45,000 crore worth Partial Credit Guarantee Scheme 2.0 for NBFCs.
  • INR 90,000 crore Liquidity Injection for DISCOMs.
  • Revised criteria for MSMEs.

Stay tuned for further updates on the Atmanirbhar Bharat Economic Stimulus Package.

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Evolution Of Tax System in India



We’ve come a long way

From an eye-watering 97.75 percent as the highest tax rate and 11 slabs, to 30 percent as the highest rate and three slabs, India and her taxpayers have a long way since independence.

Although a lot of reforms have been absolutely non-eventful, a few have come in with a Big Bang.


Evolution of Tax System in India

A systematic attempt to evolve a tax system in independent India started with the implementation of the report of the Taxation Enquiry Commission in India in 1953.

The personal income tax rates were extraordinarily high or ‘draconian’ during the decades of 1950-80.

1949-50

The first time tax rates were imposed within independent India. The then FM, John Mathai reduced the taxes on income up to INR 10,000 to 1/4th Anna. The tax on 1st slab was reduced from 2 Annas to 9 Pies and the tax on 2nd slab was reduced from 2 Annas to “one nione pies”. 

*An Anna is a currency unit formerly used in India. 1 Anna = 1/16 of Rupee. It was divided into 4 Paisa or 12 Pies. Hence there were 64 Paise in a Rupee and 192 Pies.


1974-75

Finance Minister Y.B. Chavan cut the maximum rate from a ‘draconian’ 97.75% to 75%. Taxes were lowered for taxpayers of all levels of income.

Zero tax for individuals earning upto INR 6,000. The marginal rate of basic income-tax was kept at 70% on the income slab over INR .70,000. The surcharge was also reduced. This was 10% of all categories. Hence the effective tax amounted to 77% in the highest slab.

Wealth tax was also increased.


1985-86

The tax structure was greatly modified by Vishwanath Pratap Singh. The number of income tax slabs was reduced by half - from eight to four. Individuals earning less than INR 18,000 paid no tax. The rate of income tax on the slab of INR 18,001 to INR 25,000 was fixed at 25%. The income tax on slab of INR 25,001 to INR 50,000 was 30%. And the tax on INR 50,001 to INR 1 lakh was 40%. The highest rate of income tax was reduced from 61.875% to 50% on income slab above INR 1 lakh.


Liberalization of Personal Income Taxation

The last wave of reform in personal income taxation was initiated on the basis of the recommendation of the Tax Reform Committee, 1991. Henceforth, the tax rates were considerably simplified.

Personal income tax rates have remained stable since then, with some changes in the tax slabs.

1992-93

The tax structure from this period looked a lot like the structure we know today. The then Finance Minister Manmohan Singh reduced the number of slabs to three.

The lowest tax rate was 20%, applicable for income levels between INR 30,000 to INR 50,000. A middle slab was introduced for income levels of INR 50,000 to INR 1 lakh. The tax rate was 30%. A maximum rate of 40% was applicable for those earning above INR 1 lakh.


1994-95

After a gap of 2 years, Manmohan Singh decided to adjust the tax slabs but keep the rate unchanged. Hence, the first slab was set at INR 35,000 to INR 60,000, with the same rate of 20%. The second slab was set at INR 60,000 to INR 1.2 lakh with the same rate of 30%. The maximum tax rate of 40% was set for income over INR 1.2 lakh.


1997-98

A lot of Finance Ministers changed the tax structure in their own ways. But it was P. Chidambaram who presented the ‘Dream Budget’. 

He replaced the prevailing rates of 15%, 30% and 40% with 10%, 20% and 30%. Those in the first slab earning INR 40,000 to INR 60,000 paid a tax of 10%. The middle slab was between INR 60,000 to INR 1,50,000 with a tax rate of 20%. 30% was the tax rate for incomes above INR 1,50,000.

The standard deduction limit was increased to INR 20,000. This was supposed to be applied uniformly to all salaried taxpayers. It was also announced that all employees drawing a salary of INR 75,000 per annum and contributing 10% to the provident fund would have to pay no tax at all.


The 21st Century

2005-06

A decade went by without any considerable changes to the tax structure. P. Chidambaram once again stepped up to make a few important changes to tax brackets. He announced that those earning up to INR 1 lakh would pay no tax. Those earning INR 1 lakh to INR 1.5 lakh were taxed at 10%. Income between INR 1.5 lakh to INR 2.5 lakh were to be taxed at 20%. Finally, those earning over INR 2.5 lakh were to pay 30% as tax.


2010-11

After a gap of five years, Pranab Mukherjee, changed the income slabs.

He announced that those earning up to INR 1.6 lakh would pay zero tax, those in the income bracket of INR 1.6 lakh to INR 5 lakh would pay 10%, those in the bracket INR 5 lakh to INR 8 lakh would pay 20%, and anyone earning more than INR 8 lakh would pay 30%.


2012-13

Mukherjee increased the exemption limit for the general category of individual taxpayers from INR 1.8 lakh to INR 2 lakh. He also changed the tax slabs slightly.

He announced that those earning up to INR 2 lakh a year did not have to pay tax, those earning between INR 2 lakh and INR 5 lakh would now pay 10%, those earning INR 5 lakh to INR 10 lakh would pay a tax of 20%, those earning above INR 10 lakh would pay 30%.


2014-15

With the passage of Finance Bill, 2015, wealth-tax was abolished with effect from assessment year (AY) 2016-17. Finance Minister Arun Jaitley replaced the wealth tax with a surcharge of 2% on the super-rich with a taxable income of above INR 1 crore. Taxpayers, therefore, were not required to file a wealth tax return from AY 2016-17 onward.


2017-18

Jaitley reduced the existing rate of taxation for individuals with income between INR 2.5 lakh and INR 5 lakh to 5% from the present rate of 10%.

Added to this, the existing rebate under Section 87A of the Income-tax Act, 1961 (which was earlier given to people earning up to INR 5 lakh) was reduced to INR 2,500 from INR 5,000. This was for those earning between INR 2.5 lakh and INR 3.5 lakh. Hence, due to the combined effect of the new rebate under Section 87A and the reduction in the lowest slab to 5%, the tax burden for those earning up to INR 3 lakh would be nil. And for those in the INR 3 lakh to INR 3.5 lakh bracket would be INR 2,500.


2019-20

The new tax regime came in as a shock. A second tax regime was introduced along with the ongoing regime. 

It is divided on the grounds whether an individual wishes to claim deductions u/s 80C. If an individual does not wish to claim deductions, he is liable to pay taxes as per the new tax regime. 
The rates under the new regime have been increased. For income levels upto INR 2.5 lakh, tax is exempt. The tax rate is 5% for income slab between INR 2.5 lakh to INR 5 lakh. The middle slab was between INR 5 lakh to INR 10 lakh with a rate of 20%. The final slab is for income level above INR 10 lakh with a rate of 30%.


Way forward

As seen above, the personal income tax rates have steadily declined in India, with the maximum marginal rate of income tax coming down from a mind boggling 97% to a much more manageable 30%. Also, the slabs at which the various tax rates are applicable have considerably widened over the years. 

The inflation is on the higher side and a common man is struggling to manage his household budget and expects additional tax relief. While a further reduction in tax rates may not completely solve the common man's problems, it will certainly go a long way in putting some much needed extra cash in his hand so that he is able to manage his household budget.

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