With a view to bring the economy back on track from the Lockdown, which is set to continue till 3rd May unless extended further due to the CORONA pandemic, the CBDT (administrative body of Income Tax) examines 10 ways to accelerate tax collection to support economy. The options were a result of collective suggestion sought and obtained from IRS and field officers referred as “FORCE” which stands for Fiscal Options & Response to the COVID-19 Epidemic
The officers smells at higher instances of non-filing of returns, increase in non-deduction of tax deductible at source (TDS)/withholding the deducted tax and cases of under-reporting the tax liabilities through bogus loss claims in future which is likely to impact fiscal collection for 2020-21. They want the relief measures to be restricted to honest compliant taxpayers, especially those filing returns accordingly proposes the following short/medium measures.
Reintroduction of the Inheritance Tax
What could surprise many, the team has proposed recalling of the inheritance taxes that was abolished way back in 1985. The team backs their suggestion based on the wisdom of some developed counties where it is levied with rates as high as 55 percent.
COVID relief cess
At present, the government levies a health and education cess of 2 percent each. The officials have proposed an additional one-time ‘COVID Relief Cess’ of 4 percent to help finance capital investment. To mitigate the extra hardship on the middle class, the team further propose that the cess be made applicable only in cases where the taxable income is greater than Rs 10 lakh.
New tax saving scheme like coronavirus savings certificates on the lines of NSC
The team suggest calling for creation of a new tax savings scheme to mobilise funds for coronavirus relief, wherein individuals and Hindu Undivided Families (HUFs) can be offered an additional deduction for investments up to Rs 2.5 lakh made in this fund in line with that made u/s 80C. The amount invested will have a lock-in period of five years and will generate interest income for investors in line with what the government pays for various small scale saving instruments. They also recommend amendments to Section 13A and 13B of the I-T Act to allow political parties and electoral trusts to invest in the fund.
Rationalisation of equalisation levy
The Equalisation levy, also known as ‘Google Tax’, was introduced by the Finance Act, 2016 on certain ‘specified services’ of certain non-resident businesses, largely those providing advertisement space and services. The equalisation levy collection for FY19 and FY18 was Rs 939 crore and Rs 550 crore, respectively.
The team taking note of the surge of operation of these(largely digital/online/e-commerce entities) companies due to the increased consumption of online services, especially web streaming services, such as Netflix and Amazon Prime and Zoom, and stated that increased dependence on online commerce has made this sector to further flourish.
To garner the opportunity to increase the said tax the team proposes to increase the tax rates by 1 percent to 7 percent (from 6 percent earlier) for advertising services, and to 3 percent (from 2 percent earlier)
Taxing the wealthy
Despite the surcharge on the super-rich which had recently been raised in Union Budget 2020-21, The officials have proposed a higher tax regime for ‘Super rich’ tax payers through two alternative means both of which can be imposed for a limited, fixed period of time.
To raise the highest slab rate to 40 percent for those total income above Rs 1 crore from 30 percent at present
To re-introduce wealth tax for those with a net wealth of Rs 5 crore
Tax India income of foreign companies
At present, a surcharge at the rate of 2 percent is levied on foreign corporations if their net income is in the range of Rs 1 crore to Rs 10 crore, and at 5 percent on incomes exceeding Rs 10 crore.
The team recommends increasing surcharge paid by foreign companies on income earned from their Indian branch offices or permanent establishments more so with the dominant position India holds as a consumer market.
Raise capital gains to 10% on overseas Indian citizens
The team propose raising the capital gains accruing out of inherited properties of OCI (Overseas Citizenship of India) citizens be raised by 10 percent from the present 30 percent in case of STCG and 20 percent from the LTCG.
Tax incentives for CSR Contribution to Mobilise CSR funds for COVID relief
The team recommends that tax incentive for corporate social responsibility (CSR) activities be extended during this ‘national disaster’. They propose that companies undertaking coronavirus-related relief activities under the CSR ambit be allowed to claim the expenditure incurred as a business deduction under section 37 of the Income Tax for FY21 only. This incentive will help mobilise CSR funds for disaster management. As a measure they propose;
- Coronavirus-related relief activities be specifically defined u/s 2.
- Amendments to section 37 to permit allowances as business expenditure.
- To allow corporates to treat salaries paid to non-managerial staff during the COVID-19 crisis as part of their obligation under CSR.
- Donations to the Chief Minister’s Relief Fund from the CSR fund of corporates be treated at par with the PM CARES Fund as requested by several state governments.
- “Contributions to PM CARES Fund and CM Relief Fund should be allowed to be counted as CSR not only for the current fiscal but for FY22 as well”.
New amnesty scheme for collection of undisputed demands
In addition to the Vivaad se Vishwaas Scheme 2020 that covers demands under dispute. a large part of outstanding demand pertains to those which are crystallised and for which no dispute exists. The team propose in order to incentivise collections, an amnesty scheme waiving off interest u/s 220(2) of the I-T Act in part or in full. Similar offering of amnesty can also be adopted for undisputed penalty amount pending for collection.
Give It Up campaign
Taking cue from the phenomenal success of the ‘give it up’ campaign on LPG subsidies where many well off people voluntarily surrendered their LPG subsidy benefits, the tax department proposes to campaign encouraging the super-rich and those willing to give up at least one tax subsidy/tax deduction/tax concession for a year. For example, an individual could voluntarily opt for giving up his/her 80C/80D/80G deduction for a year.
Disclaimer: The above is from sources in public domain (money control) and CBDT has denied to authenticate as official release from their twitter handle.