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	September 30, 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.

To provide more funds at the disposal of taxpayers for dealing with the economic situation arising out of COVID-19 pandemic, rates of TDS have been reduced by 25% for following non-salaried specified payments. Here is the table of existing & new reduced rates#IndiaFightsCorona pic.twitter.com/Zg2CFijxLF

— Income Tax India (@IncomeTaxIndia) May 13, 2020

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.

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

• The rates of Tax Deducted at Source(TDS) and rates of Tax Collection at Source(TCS) for the specified receipts shall be reduced by 25%.
• Freelancers/Professionals, TDS Rates on professional fees (194J – 10%) & contract payments (194C – 1% & 2%) slashed by 25% for remainder of FY 2020-21.
• Investors/traders, TDS rates on dividend u/s 194 (Equity) & 194K (Mutual Funds) slashed by 25% (i.e from 10% to 7.5%) for remainder of FY 2020-21.

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.

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.

On March 11 2020, the World Health Organization declared Covid-19 a Pandemic, and it marked a major shift in our lives and India’s plans for FY 2020-21. India along with most of the world has been forced under a Lockdown. International Monetary Fund (IMF) predicts that Global Economy shall reduce by 3 %. Furthermore, India’s GDP growth was estimated to be a struggling 0-1% by the IMF.

The Trickel-Down effect of Covid-19.

An Economics think-tank estimates that for each month a country is under lockdown, it looses 1.5-2% of its GDP. To add fuel to the fire, India’s GDP growth was already lower than expected. Major cash cow sectors like Infrastructure and Automotive were gasping for air since November 2019. A report published by Deloitte estimated that these sectors could face a negative growth rate in double figures.

Since the lion’s share of commerce activities is halted, the monthly GST Revenue Collection has taken a Mike Tyson uppercut. India’s GST Collection was around the ballpark figure of INR 1,00,000 Crore per month in Jan and Feb 2020. But since March it has seen a dip in the numbers. The GST Revenue Collection for the month of April is said to be 40% less than usual.

As India’s fuel demand came to a complete stop, so did the Revenue for State Governments from the sale of fuel. Adding to the woes, what could have been an opportunity for State Governments to earn extra revenue through cess and due to the drop in crude oil prices was also shut by Covid-19. Apart from that sale of sin goods such as Cigarettes and Alcohol was also banned until recently. All these basically translates into State Governments steadily going bankrupt.

What are the tools at Government’s disposal to bring India Inc on track?

We are already witnessing the Government hiking taxes on Liquor and Fuel by historic margins. According to RBI the state excise duty on alcohol accounts for 10-15 percent of tax revenue for most states and State Governments collects more than INR 40,000 crore per year from the sale of tobacco products. In similar lines, Petrol and Diesel prices are also most likely going to be hiked in the coming months. But merely increasing excise on sin goods and fuel isn’t going to work. It isn’t Alladin’s famous phrase that opened the magic cave. We need something else…

Apart from the reliefs given by the Government in terms of extending the date for Revised ITR for FY 2018-19 and making Tax-Saving Investments, major relaxations are also given on the TDS front. It was announced that the late deposit fee for TDS i.e 12% is reduced to 9%. This relaxation should provide the Government with much-needed Revenue and also ease the burden on taxpayers.

Renowned Economist and ex-RBI Governor, Dr Raghuram Rajan believes that ‘Monetization’ in the form of a big Economic Stimulus can act as a Ventilator for India. But, anyone with decent medical knowledge will tell you that a ventilator is merely a short term solution. For people to be really healthy, they should be able to breathe through their own lungs. Ergo, we must look at other ways in which Economic Growth can be stimulated. But to keep India buoyant Economists estimate that a stimulus Package of INR 15 Lakh Crore should suffice.

One far fetched speculation is the legalization of Gambling. Fun Fact- A report from Doha-based non-profit International Centre for Sport Security estimated India’s illegal gambling market is worth nearly INR 10 lakh Crore. Imagine the Tax Revenue that could be generated from a legalized yet monitored gambling industry. Undoubtedly Tax Revenues from legalized gambling could be a major economic boost for the Economy.

Heard the phrase…’ Every Cloud has a silver lining‘? Well that could be the case here as more and more countries are considering an inward-looking economic policy. That’s what Union Minister Nitin Gadkari meant while he announced an ‘Import Substitution’ policy being formulated. He announced it during the conference for representatives of the Association of Lady Entrepreneurs of India. Meaning that India could become increasingly self-reliant than before, hence boosting employment and consumption.

To wrap it up, it’s still unclear what the Government’s course of action might be. Hence, it is important for us to keep our spirits high. In words of Ratan Tata- “In past, difficult times like these became the flagpoles of innovation and creativity that could not have been believed to exist“

What is FORCE?

On April 25 a list of ideas were presented by 50 IRS (Indian Revenue Services) officers or the “Task Force”.

These recommendations were presented with a view to revive the economy after COVID-19 and recorded in a 44-page document titled ‘FORCE’ or ‘Fiscal Options & Response to Covid Epidemic’. The document was presented to the Prime Minister’s Office (PMO), Union Finance Ministry and the Central Board of Direct Taxes (CBDT). The paper delves into several steps the officers think are needed to revive the economy. It also talks about raising additional revenue without burdening the common man.

“The government needs to spend considerably more to revive the economy and it needs to raise additional revenue, but in ways that must not burden the already distressed common man,” the paper says. “In times like these, the so-called ‘super-rich’ have a higher obligation towards ensuring the larger public good.”

A lot of radical ideas of the 1970s are lurking in the air…

Tax the rich!

“The Government should commit itself to the fact that the additional revenue raised through taxing the wealthy will only and only be utilized for these 5-10 projects or schemes (mentioned in the paper),” the paper argued.

The paper recommends raising the income tax slab rate to 40 percent for taxpayers having income above INR 1 crore. It also emphasizes the re-introduction of wealth tax for those with a net worth of INR 5 crore or above.

An additional one-time cess of 4 percent should be levied on those with a taxable income of more than INR 10 lakh. The “Task Force” estimated that an extra revenue of INR 15,000 crore to INR 18,000 crore could be generated using this.

Mobilisation of CSR funds for COVID-19 relief by extending tax incentives was also emphasized. Corporates should be allowed to treat the salaries paid to their non-managerial staff as a part of their obligation under CSR. This is an effort to guarantee continued wages during non-working days during this crisis.

The paper also suggests a new tax-saving scheme, a Covid-19 savings certificate, in order to mobilize funds.

Increase ‘equalization levy’ for E-Commerce firms…

The coronavirus economy has proved to be largely a digital/online/e-commerce one. India can tap the more profitable economies by imposing higher tax rates on companies such as Netflix, Amazon Prime, Google and many more. The equalisation levy can be increased from 2 percent to 3 percent for major e-commerce companies. 

On March 23, India had taken a tough call of increasing the equalization levy to 2 percent. This had received enough push back and deferment  from major tech heavyweights like Google and Facebook.

Benefits for poor…

The paper also suggests DBT or Direct benefit Transfer to the poor. It states, on the expenditure front, a direct cash transfer to the 12 crore most economically disadvantaged households. The transfer should range between INR 3,000 to INR 5,000 for a period of 6 months.

If envisioned and implemented in a targeted fashion, the scheme holds tremendous promise and achieves ‘three-prized’ objectives – provision of income, support to the unemployed, creation of public infrastructure and investment in human capital.

Healthcare sector to drive the economy…

The healthcare sector has an immense scope of growth owing to the present circumstances. The sector must incorporate the manufacturing of pharmaceuticals, medical grade masks, vests, gowns. The focus should be on the building of testing labs, ventilators, hospitals and primary health centres.

On a taxation point of view, a complete tax holiday or tax break to be proposed for the next 3 years for all corporate, businesses and firms operating in healthcare sectors.

Steps to boost ‘consumption’

The Task Force has incorporated a list of recommendations to increase the disposable income and boost the consumption.

• Allowing the short-term capital loss suffered by retail investors to be set off from their salary. Hence saving them from any tax liability on the money lost. These losses are majorly suffered due to the recent stock market slump.

• Any allowances or bonuses given to employees with an annual pay of less than INR 10 lakh should not be taxable.

• Allow the deferral of tax payment by individuals who have lost their jobs for 6 months or more or until they find a new job.

• Provide increased deduction on interests over the purchase of houses, automobiles, and other electronic items which are ‘made in India’.

• Inclusion of a tax moratorium for MSMEs. This sector is bound to be the worst-hit by the crisis and it has a tax liability of INR 5 to 10 crore for one year.

Radical ideas of 1970

The document proposes the opposite of what might be needed. With the rise in extreme circumstances, radical steps in taxation have found its way in India. 

Suggestions in the document are similar to the policies of the 1970s.  These are 1974 ideas returning in 2020. The document is suggesting a 55 percent tax (including cess) on people earning over INR 1 crore. This draconian tax rate was removed during the economic reforms of 1991. It suggests an additional tax for MNCs, a surcharge on inheritance by overseas Indians and additional tax on gig money.

The liquidity in the hands of individuals is decreasing by the day. There has been a sharp decline in consumption and the revenue generated by the government might not cater to the needs of a country with a population of nearly 1.4 billion.

Around the world, Governments have been implementing tax incentive policies, tax breaks and tax holidays. Efforts are being for more liberal tax policies. India should aim at implementing a more predictable tax-regime. 

The Spurn

The CBDT had rejected the report calling it “a violation of extant Conduct Rules.”

“There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation. It is unequivocally stated that CBDT never asked the IRS Association or these officers to prepare such a report,” the Income Tax Department said on Twitter. The CBDT also stated that no permission was given to the officers before going public with their personal views and suggestions.

The department further said “It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner.”

(1/3)There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation.
It is unequivocally stated that CBDT never asked IRS Association or these officers to prepare such a report.@nsitharamanoffc @Anurag_Office

— Income Tax India (@IncomeTaxIndia) April 26, 2020

(2/3)No permission was sought by the officers before going public with their personal views & suggestions, which is a violation of extant Conduct Rules. Necessary inquiry is being initiated in this matter.@nsitharamanoffc @Anurag_Office

— Income Tax India (@IncomeTaxIndia) April 26, 2020

(3/3)It is reiterated that the impugned report does not reflect the official views of CBDT/MInistry of Finance in any manner.@nsitharamanoffc @Anurag_Office

— Income Tax India (@IncomeTaxIndia) April 26, 2020

“There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation. It is unequivocally stated that CBDT never asked the IRS Association or these officers to prepare such a report,” the Income Tax Department said on Twitter. The CBDT also stated that no permission was given to the officers before going public with their personal views and suggestions.

The department further said “It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner.”