Income Tax Amendments Jeopardise Taxpayer’s Interests, Says Bombay Chartered Accountants’ Society

A majority of the amendments introduced through Union Budget 2020 will jeopardise the interests of taxpayers, the Bombay Chartered Accountants' Society has said.

The society—a voluntary organisation that represents chartered accountant professionals across India—has, in its representation to Finance Minister Nirmala Sitharaman, suggested that certain aspects of the Finance Bill, 2020, be rationalised.

Sitharaman proposed many changes in the existing tax regime in the budget, including the introduction of a new tax regime for individuals at lower tax rates if they agree to give up existing deductions and exemptions. The budget also proposed the abolition of the dividend distribution tax and taxing stateless persons.

The society, has also called for changes in residency provisions, taxation of dividend income in the hands of taxpayers, collection of tax at source, scope of business connection. It has called for the omission or deletion of certain proposed changes.

Here are the key representations....

Omission Of New Tax Regime For Individuals

Budget 2020 proposed new tax regime for individuals with lower taxable income if they agree to give up existing deductions, exemptions and rebates. A taxpayer will have to forego existing deductions for house rent and leave travel allowances, among others.

The society has said the proposed amendments would result in a complicated scenario for taxpayers as they would face the “difficult question” of opting for either regime. There's no clarity on applicability of the new tax regime for deducting of tax at source by employers, it said.

TCS On Remittances Under LRS Scheme

Budget 2020 introduced a provision making it mandatory for an authorised dealer to collect 5 percent tax at source on foreign remittances under the RBI's liberalised remittance scheme, if the remittance exceeds Rs 7 lakh.

The Bombay Chartered Accountants Society has suggested deletion of the provisions relating to tax collection at source because:

• Widening of tax base can be achieved through existing monitoring mechanisms. Foreign remittances are made for personal expenses and hence imposing TCS on remittances would result in taxing transactions having no income element.
• Remittances are made by individuals using an account linked with their permanent account numbers through banks, who provide details of such remittances to the RBI on a daily basis.

Residency Provisions, Taxation Of Stateless Persons

The finance minister proposed taxing income of Indian citizens who avoid residence in any country with an intent to escape tax liability. This led to confusion among non-resident Indians working in countries like United Arab Emirates, which doesn't impose tax on income of its residents.

The government later clarified that taxation based on deemed residency would apply only on the Indian income.

The Bombay Chartered Accountants Society has suggested deletion of the residency provisions citing that there are existing provisions in the Income Tax Act which amply deal with taxation of non-residents. Noting that the non-resident Indians may give up their citizenship due to these provisions, the society recommended that the government should amend the law to state that the amendment will only cover stateless persons.

Enhanced Scope Of Business Connection

Finance Bill 2020 proposed widening of the source-based test to determine business connection of persons in India on account of their significant economic presence. Further, a non-resident's income from certain specified activities would become taxable even if it's not due to a business connection arising out of significant economic presence. This includes:

• Income of a person from ads targeting an Indian resident or ads consumed through an Indian internet protocol address.
• Income from sale of data which is collected from a person residing or having an Indian IP address.

The Bombay Chartered Accountants Society has said that the government has already introduced equalisation levy for such transactions. Noting that non-residents who have no business connection in India due to the absence of significant economic presence would be impacted by this enhanced scope of business connection, it has recommended deletion of this provision.

The society has also recommended deletion of changes relating to the taxability of employer's contribution to a recognised provident fund, superannuation fund or pension scheme.

A copy of the representation is embedded below.