Budget 2022 Tax Wishlist: Deduction Of Covid Expenses, E-Assessment For Large Corporates

The union budget of 2022 will come at a crucial juncture. While the Indian economy has made a post-Covid recovery, it still needs support from the government to return to steady, equitable growth. Especially, with a potential third wave of infections led by the Omicron-variant staring India in the face.

Against this backdrop, the Bombay Chamber of Commerce and Industry has sought several changes in the existing tax regime to boost business, especially the services sector that has borne the brunt of Covid.

Here are the key suggestions by the industry association:

Corporate Tax

Among the BCCI's key suggestions on the corporate tax front are—allowing all Covid-19 expenses to be fully deductible, boosting the services sector, a wider definition for 'undertaking' under income tax and more.

Deduction of CSR Expenses

In its representation, the BCCI has pointed out challenges posed by Covid-19 for businesses and increased expenditure in the form of continuous payout to the workforce, increased corporate social responsibility expenditure and generous contribution to PM Relief Fund and PM CARES.

Any expenditure on CSR doesn't qualify for deduction under the income tax law.

On the one hand, business performance has been impacted due to Covid and on the other hand, costs have substantially increased due to additional safety measures, community welfare expenses or increased CSR expenditure, the BCCI has stated. The proposal is to allow for all expenses related to Covid-19, whether part of CSR or not, to be made fully tax deductible.

Boosting Services Sector

At present, newly established manufacturing units may avail of a concessional tax rate of 15% (plus surcharge and cess) as per tax policy changes announced in 2019. However, this incentive is not available to the services sector, which is one of the major contributors to employment as well as GDP. Additionally, the tax holiday for IT Special Economic Zones also expired on March 31, 2020, making the Indian services sector highly uncompetitive.

And so, the BCCI has proposed to extend the concessional rate of 15% to businesses in the services sector as well. If necessary, key segments having high output or employment multiplier may be identified through economic analysis, it has further suggested.

Wider Definition for 'Undertaking'

Under the income tax law, the definition of ‘undertaking' does not include investment in a company carrying on regulated business like insurance, non-banking financial companies, banking, asset management companies, special purpose vehicles in infrastructure sector, etc.

This makes it difficult for a holding company with such investments to demerge the business in a tax-efficient manner, especially when compared to a business normally held within the fold of the demerged entity.

This being the case, the BCCI has recommended the Finance Ministry modify the definition of ‘undertaking' to permit tax-efficient demerger of regulated businesses by a holding company.

Work From Home In SEZ Units

For the IT/IT enabled services based businesses having units in a special economic zone, the Department of Commerce has permitted development commissioners to approve requests from the SEZ units for extension of work from home facility in a liberal manner.

But there is still ambiguity on whether employees' WFH should be considered an extension of the SEZ facilities as they would be connecting to servers through encrypted and secured networks while providing the required services to customers.

In this context, the BCCI has sought clarification on whether WFH is an extension of the SEZ facilities. Also, SEZ units should be eligible for all corresponding tax and non-tax benefits in this regard.

Deduction For New Hires

Section 80JJAA of the Income Tax Act allows a deduction of 30% on additional employee cost incurred by a taxpayer on new employees. At present, this benefit is only available with respect to employees drawing wages up to Rs 25,000. It has been recommended that this limit must be increased to Rs 1,00,000. This is to incentivise organisations to generate new employment opportunities.

Improving Legal Framework

No Retrospective Amendments

Making tax amendments effective retrospectively only creates doubts and lack of clarity, said the BCCI. The Finance Act, 2021 contained a number of such amendments such as denial of depreciation on goodwill, disallowance of employees' contributions to PF/ESI, which were effective from financial year 2020-21 instead of being prospective.

In reality, these revisions gave rise to uncertainties and are 'retrospective' in nature, which is beyond the law, the industry association pointed out.

So, against this backdrop, the BCCI has recommended that any substantive amendments impacting computation of the total income and creating additional tax burden on taxpayers in the Finance Bill 2022 should be made with prospective effect from assessment year 2023-24 and not earlier.

Replace Faceless-Assessment For Large Corporates

One of the most important recommendations made by the BCCI is to have e-assessment instead of faceless assessment for large corporates, i.e., with a turnover of over Rs 1,000 crore.

The BCCI is of the view that the opportunity for personal hearings through video conference should be liberally provided, as and when the taxpayer requests for it while following the principles of natural justice.

The BCCI's ask comes on the back of various pending petitions challenging the faceless assessment scheme before the Bombay, Kerala and Madras High Courts. Taxpayers have moved to the courts claiming that the scheme has procedural lapses and is violative of principles of natural justice.

Apart from providing sufficient time for arguments, the BCCI has urged authorities to ask for targeted explanation on identified issues rather than merely asking for voluminous transaction level information such as listing of sundry debtors, sundry creditors, sales, purchases, etc.

Stricter Time Limits For Adjudicating Bodies

At present, assessment orders giving effect to favourable appellate decisions is not being provided by assessing officers in a time-bound manner. Assessees need to follow up relentlessly to get such orders. Same is the case with rectification orders on application made by taxpayers.

So, in order to bring transparency, the BCCI has proposed to introduce an 'online system' for streamlining these aspects:

• Filing of any rectification request or

• Request to pass orders giving effect to order of appellate authority.

Each such request should be given a unique serial number and the tax authority should dispose such cases serially. The BCCI said this system will enable authorities to constantly monitor cases at the regional and national level. Also, authorities will come to know of the pendency of such requests.

The BCCI has also sought to make the existing timelines for disposal of appeals i.e., a year for Commissioner of Tax (Appeals) and four years for Income Tax Appellate Tribunal, stricter to achieve tax certainty. And, to make the tax department accountable.

Indirect Tax Proposals

New TDS Provision For Non-GST Payers

In July 2021, the government had introduced a new provision—a buyer while making payment to resident seller for purchase of goods having value exceeding Rs 50 lakh in the previous year is required to withhold taxes at the rate of 0.1%.

The move was brought in to widen and deepen the tax base. This is well appreciated, said the BCCI. But, industries currently view it as an onerous compliance burden. Businesses with thresholds of Rs 10-crore turnover and/or Rs 50-lakh transaction value are already within the goods and services tax regime and relevant information is populated while filing GST returns.

So, in this light, the BCCI has recommended to make the new provisions applicable only to those payers who are not registered under the GST.

Also, instead of TDS/TCS, the purchasers/sellers can be asked to file annual information returns which will avoid interest, penalty, disallowance and prosecution consequences for TDS/TCS default.

'Goods' Definition

This apart, the BCCI has suggested to precisely define the term, 'goods' while excluding items such as shares, securities, foreign currency and actionable claims. This is because currently, there are two definitions for the term, under Sale of Goods Act and the GST law.