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Easwar Committee Report: Tax=Simplifed?

Published on Wed, Jan 20,2016 | 17:48, Updated at Wed, Jan 20 at 17:48Source : 

By: Vikas Vasal, Partner, KPMG India

Justice Easwar Committee report on Income tax simplification measures has proposed many significant changes, for consideration during the forthcoming Union Budget 2016.  These recommendations, if implemented, will have a positive impact on the business sentiment in the country and further enhance ease of doing business.  Few of the important changes impacting the common tax payers are highlighted below.

Capital Gains – A welcome move
The tax payers often face a challenge in their tax assessments on the transactions relating to sale and purchase of shares and securities, as to whether such income is to be classified as “capital gains” or as “business income”.  Though, over the years the courts have laid down various tests and factors, and the CBDT has also issued guidance in the form of circulars on this subject, still it continues to be a complex issue.  In case of individual tax payers, it is often difficult to substantiate their intent for acquiring the shares especially in absence of well-maintained accounts and thereby resulting into dispute and litigation with the tax authorities

The Committee has proposed to bring in a welcome relief to the small tax payers.  It has been proposed that the profits or gains arising from the transfer of shares or securities, up to Rs five lacs during a particular financial year, where such shares or securities have been held by the tax payer for not more than twelve months, should be taxed as capital gains.  In other words, such gains should not be treated as business income, unless the tax payer himself treats such shares or securities as stock-in-trade.  

Further, in case of shares or securities held for more than twelve months, the gains should be treated as capital gains, in all cases, unless the tax payer himself treats such shares as stock-in-trade.

TDS – A welcome change
Another significant proposal in the report, for consideration during the Budget 2016, is regarding rationalization of the existing Tax Deducted at Source (TDS) regime in the country.  It is pertinent to note that a significant portion of tax revenue in India is collected through TDS.  It is felt that the current TDS provisions are quite onerous and need to be rationalized.   In its report, the Committee has proposed to achieve the twin objectives.  First, to increase the threshold limits and Second, to reduce the effective TDS rate. It has been proposed that interest on bank deposits for individuals and HUFs should be reduced to 5% on interest payments of Rs 15,000 or more, in comparison to the current TDS rate of 10% and threshold limit of Rs 10,000.  Similarly, TDS on commission or brokerage is being proposed to be reduced to 5% on payment of Rs 15,000 or more, in comparison to the current limit of 10% on Rs 5,000 or more.  In case of TDS on rental income, the threshold limit is being proposed to increase to Rs 2,40,000 from the earlier limit of Rs 1,80,000, while retaining the TDS rate at 10%.  There are similar proposals for other payments on which tax is deducted at source.

Tax Transparency
The Committee has also proposed that the Government should aim to achieve most of the tax processes electronically so that there is minimum interface between the tax payer and the tax administration.  This will help improve transparency, bring in consistency in approach and address many of the concerns of the common tax payers.  It has been proposed that besides the electronic filing of tax returns, various other measures like filing an application for rectification of mistakes, filling of appeals, rectification of errors in TDS documents etc. should be undertaken electronically.  

Overall, the proposed changes are move in the right direction.  We look forward to seeing some of these recommendations being implemented in this year’s Union Budget.

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