Suggestive Direct Tax Propositions for Budget 2021
The present applicable tax rate in case of domestic companies with turnover up to Rs. 400 cr is 25%.
Option to opt for Lower tax rates of 22% in case of certain domestic companies is available u/s 115BAA.
Further, option to opt for even lesser tax rates of 15% is available for certain domestic manufacturing companies in terms of Sec 115BAB.
Whereas the applicable rate of tax in case of partnership firms and Limited Liability Partnerships (LLPs) is 30%. This creates huge tax disparity.
It is understandable that in order to encourage the organised sector, the government has offered lower tax rates for companies.
But even on that pretext the tax rates are really partial towards LLPs which are also duly registered with MCA, follow various compliance requirements including filing of Annual Return and Statement of accounts with ROC, as they fail to enjoy the advantage of lower tax rates. All the information of LLPs is duly available on public domain.
The tax rates for LLPs should be brought at par with the tax rates of domestic companies, i.e.,
- General tax rate of 25% for LLPs with turnover up to 400 cr.
- Reduced tax rate of 22% subject to similar provisions of Sec 115 BAA
Tax rates for partnership firms should also be brought down to say 25%.
2 Lower liquidity in the hands of businesses due to Covid-19 impact
Continuation of reduced TDS rates by 25% up to Q1 & Q2 of FY 2021-22. This will support businesses in Covid recovery period with higher liquidity and help sustain their businesses.
3 Hefty increase in premiums of medical insurance policy
- Rationalisation of general limit of medical insurance for individual from Rs. 25,000 to Rs. 50,000
- Further, in case of senior citizens, medical insurance limit should be relaxed to Rs 75,000 from Rs. 50,000
4 Sec 44AD
Sec 44AD provides for deeming profits in case of an eligible assesse with turnover up to Rs. 2 crores, @ 6% / 8% of gross receipts.
Sec 44AD(4) & 44AD(5) further provides as under:
Sec 44AD(4) : Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
Sec 44AD (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
The purpose of Sec 44AD is to relax the compliance burden for a small taxpayer, specifically, the once having turnover less than 2 crores.
However, the conditions provided under Sec 44AD(4) and 44AD(5) are very deterrent provisions for such small taxpayers.
The requirement to abide by and declare profits in terms of the provisions of Sec 44AD for a continuous period of 5 years, failing which the assessee is required to mandatorily get his accounts audited u/s 44AB for next 5 years, is very harsh on small taxpayers.
This makes the scheme of Sec 44AD for small taxpayers very stringent and less viable. This is more so keeping in view the relaxation in tax audit limit newly brought in to Sec 44AB by insertion of proviso to Sec 44AB (a). By virtue of the said amendment, the tax audit limit has gone up to Rs. 5 crores provided Cash receipt or Cash payment ratio does not exceed 5%.
This creates huge anomaly in Income Tax Act where a small assessee with turnover of even less than 1 crores is required to get tax audit done for a period of 5 years if he declares profit less than 6% / 8% opts out of Sec 44AD before 5 continuous years.
On the other hand, an assessee with turnover between 2crores to 5 crores is not required to get tax audit done if satisfies the condition of proviso to Sec 44AB(a) and may even file its ITR at losses without tax audit.
The provisions of Sec 44AD(4) and Sec 44AD(5) should be relaxed keeping in view the huge compliance burden on small taxpayer.
5 Taxability of Long term capital gains @ 10% vis-à-vis Short term capital gains of 15% leaves a small gap of 5% between short term and long term capital gains, acting as a deterrent for long term investors and more volatility in the market.
Scrapping taxability of long term capital gains on equity shares and equity oriented mutual funds
6 Additional depreciation u/s 32
Presently, the additional depreciation is only allowed in case of installation of new plant and machinery by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power.
No such additional depreciation is allowed in case of new plant and machinery installed by service industry. Under the current scenario, major employment opportunities are generated in service sector and the plant and machinery being computers form the main infrastructure for expansion/ addition of new workforce to their team.
Moreover, the depreciation rates on computers have been reduced from 60% to 40%.
Provision of additional depreciation to service industry on installation of office would promote tax incentive on expansion and generation of new employment opportunities by service sector.
Additional depreciation on installation of new plant & machinery to be provided to service sector.
7 Women workforce hygiene and enforcement measures
Under present days, where women are ahead of men in all spheres of work life, there are not much workplaces which have separate toilets installed for women, especially in case of MSMEs. This creates huge hygiene issues for women workforce.
Moreover, day care centres if setup at offices, would encourage women to balance work and personal duties in a better way. A mother who is better relieved about the well-being of her child, can better focus on her job and offer far-sighted results.
- 100% Weighted deduction/ additional depreciation on installation of separate women toilets at workplaces.
- 100% Weighted deduction/ additional depreciation on installation of sanitary pads vending machines for women at workplaces.
- Weighted deduction/ additional depreciation on setting up cruches/ day care centres set up within a commercial organisation employing say 20 or more women workforce.
8 Installation of paper recycle machines, water recycle machines, and waste recycle plants need to be encouraged more and more for a green environment.
- 100 % Weighted deduction on installation of paper recycle machines, water recycle machine and waste recycle plants etc.
9 Sanitisation machines
In the wake of Covid -19, sanitisation and personal hygiene of an individual, before coming in contact of any other individual has gained momentum.
This is helpful in prevention of spreading of any virus related disease and not just novel coronavirus.
Therefore, installation of sanitisation machines which involve huge one time outlay for a business organisation should be encouraged by tax incentives.
- 100% weighted deduction should be allowed on installation of sanitisation machines in offices for a period of next 3 years.
10 Inclusion of Covid-19 in specified disease
There have been many such cases during pandemic where in the absence of medical policies, huge lacks of monies had to be spent on treatment of covid-19.
Curative provision allowing deduction of such expenditure spent should be inserted with retrospective effect from 1.4.2020
Deduction of medical expenditure made on treatment of Covid-19 of self, spouse, dependent children and parents, incurred by an individual should be allowed.
Subject to condition that the expenditure is not covered by any medical insurance policy.
11 Promotion of new investment in business set up by an individual by liquidation of his house property
Presently, there is no deduction of capital gains available to provide for tax incentive where any individual sells some property for the purpose of setting up new business, purchase of new plant and machinery, which in turn generates more employment opportunities.
Deduction of such long term capital gains on sale of property for investment in setting up new businesses should be allowed upto 50 lacs.
This would encourage those individuals having surplus properties to invest funds in new business, which would in turn generate new employment opportunities and promote “Atmanirbhar Bharat”
12 Tax holiday for of Setting up of hospital units depending upon the capacity of beds
In the backdrop of pandemic, there is high need of hour to expand our medical infrastructure
5 years tax holiday on profits of new hospitals set up within a period of next 3 years, i.e., from the period 1.4.2021 to 31.03.2024
- Tax holiday of 50% of profits - in case of hospitals with beds capacity of upto 100
- Tax holiday of 75% of profits - in case of hospitals with beds capacity of upto 300
- Tax holiday of 100% of profits - in case of hospitals with beds capacity of upto 500
I HOPE Narendra Modi Sir and Mrs Nirmala Sitharaman shall consider the suggestions