The Union Finance Minister Arun Jaitley on 29 February 2016 presented the Annual Financial Statement or the Union Budget for 2016-17 in the Lok Sabha. In his budget speech the minister listed nine pillars on which the Government will focus on in order to transform India into a developed nation.
The nine pillars are - Agriculture and farmers' welfare, rural sector, social sector including healthcare, education, skills and job creation, infrastructure and investment, financial sector reforms, governance and ease of doing business, fiscal discipline, tax reforms to reduce compliance burden.
In the tax reforms segment, the following new initiatives were proposed in the Budget 2016-17. Broadly, the provisions are related to tax litigation, simplification and rationalization of taxation and use of Technology for creating accountability.
Measure to reducing litigation and provide certainty in taxation
The following measures were announced to curb black money, provide a stable and predictable taxation regime.
• Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30 percent and surcharge at 7.5 percent and penalty at 7.5 percent, which is a total of 45 percent of the undisclosed income.
• Surcharge levied at 7.5 percent of undisclosed income will be called Krishi Kalyan Surcharge (KKS) to be used for agriculture and rural economy.
• The window under this Income Disclosure Scheme will be available between 1 June 2016 and 30 September 2016 with an option to pay amount due within two months of declaration.
• Declarants will have immunity from prosecution under the Income Tax Act, 1961 and the Wealth Tax Act, 1957. Immunity from Benami Transaction (Prohibition) Act, 1988 was also proposed subject to certain conditions.
Litigation related measures
Dispute Resolution Scheme
• Under this proposed scheme, no penalty will be imposed in respect of cases with disputed tax up to 10 lakh rupees.
• Cases with disputed tax exceeding 10 lakh rupees to be subjected to 25 percent of the minimum of the imposable penalty.
• Any pending appeal against a penalty order can also be settled by paying 25 percent of the minimum of the imposable penalty and tax interest on quantum addition.
• Certain categories of persons including those who are charged with criminal offences under specific Acts are proposed to be barred from availing this scheme.
• This scheme is of significance as at present there are about 3 lakh tax cases pending with the 1st Appellate Authority with disputed amount being 5.5 lakh crore rupees.
Taking into account opposition from various quarters on the sensitive issue of retrospective application of tax the Government announced following measures.
Formation of Committee: A High Level Committee will be constituted to oversee any fresh case where the assessing officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment. The committee will be chaired by the Revenue Secretary and consist of Chairman, CBDT and an expert from outside.
In relation to past cases
• One-time scheme of Dispute Resolution: It will be introduced for ongoing cases under retrospective amendment.
• Penalty rates to be 50 percent of tax in case of under reporting of income and 200 percent of tax where there is misreporting of facts. This new graded regime will replace the existing authority given to the Income-tax Officer who can levy penalty at the rate of 100 to 300 percent.
• Disallowance will be limited to 1 percent of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
• Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.
• Mandatory for the assessing officer to grant stay of demand once the assesse pays 15 percent of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).
• Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from 15 lakhs to 50 lakhs rupees.
• 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) will be set up
Simplification and rationalization of taxation
• Many of the following measures were based on the recommendations of the Justice R V Easwar (Retd) Committee on simplification of the provisions of Income-tax Act, 1961 that submitted its report in January 2016.
• 13 cesses, levied by various Ministries in which revenue collection is less than 50 crore rupees in a year will be abolished. This measure was announced to reduce multiplicity of taxes, associated cascading and to reduce cost of collection.
• Non-residents without PAN are currently subjected to a higher rate of TDS. It was proposed to amend the relevant provision to provide that on furnishing of alternative documents, the higher rate will not apply.
• The facility for revision of return, hitherto available to a service tax assessee only, will be extended to Central Excise assessees also.
• Additional options to banking companies and financial institutions, including NBFCs, for reversal of input tax credits with respect to non-taxable services.
• The Customs Act, 1962 will be amended to provide for deferred payment of customs duties for importers and exporters with proven track record. The proposed amendments seeks to reduce the cargo release time and the transaction costs of EXIM trade.
• Indian Customs Single Window Project to be implemented at major ports and airports starting from beginning of 2016-17. The project was announced in the 2014-15 Budget. The aim of this project is to provide a common platform to trade to meet the requirements of all regulatory agencies (including Animal Quarantine, Plant Quarantine, Drug Controller, Textile Committee etc.) involved in EXIM trade through message exchange.
• Increase in free baggage allowance for international passengers. The filing of baggage declaration will be required only for those passengers who carry dutiable goods.
Use of Technology for creating accountability
Following measures were announced in order to augment usage of technology in taxation Department and make life simpler for a law abiding citizen and also for data mining to track tax evaders.
• e-assessment: Expansion in the scope of e-assessments to all assessees in 7 mega cities in the coming years. A pilot was run in 2015-16 for e-assessment to obviate the requirement for tax payers to visit the Income-tax offices.
• e-Sahyog: Income-tax Department (ITD) will fully expand this pilot initiative with a view to reduce compliance cost, especially for small taxpayers. The e-Sahyog seeks to provide an online mechanism to resolve mismatches in income-tax returns without requiring taxpayers to attend the Income-tax office.
• In matters pertaining to Income-tax Act, 1961 Government will pay interest at the rate of 9 percent per annum against normal rate of 6 percent per annum in case there is delay in giving effect to Appellate order beyond 90 days. The officers, who delay it, will be accountable for this loss to Government.
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