We enclose for favour of your consideration, the Bombay Chamber of Commerce and Industry’s Pre-Budget Memorandum [Indirect Tax] for the Financial Year 2022-23.
We trust our suggestions, which have been formulated after a detailed analysis of the Statutory provisions and the Operational Rules, will receive your consideration and provide inputs for bringing about cohesive improvements in the substantive and procedural tax laws. It would be our privilege to provide further inputs on any of these issues.
Our members would deem it a privilege to participate in any meeting/s organised by the Ministry, to make a presentation on our key suggestions and also to provide further clarification to our suggestions, if any.
Monetary assistance and other support provided by the industry to the employees and society at large for COVID-19 care related expenses
– Request for exemption from Income-tax in hands of recipients and business expense deduction for industry
The second wave of COVID-19 pandemic in India has been more severe and devastating than the first wave, affecting many more human lives and causing significant stress on the healthcare services. In the words of the Hon’ble Prime Minister, it is a storm which has shaken the nation.
Whilst both Central and State Governments are doing their best to tide over the crisis, the challenge is humongous, and all stakeholders have stepped forward to provide every possible support to the affected people. The corporate sector has remained committed to supporting the Government in this fight. It has extended itself in many ways in providing assistance to the society.
Businesses are complementing government endeavours in fighting the pandemic, by providing essential and life survival items such as medical oxygen, oxygen concentrators, ventilators, setting up Covid care centres, free meals, accommodation to frontline workers, etc.
Besides contributing to the society at large, businesses have been actively taking care of their employees across all levels, and their immediate family members, to protect lives and livelihoods. The employer(s) have stepped in to provide financial support to employees to meet COVID-19 care related expenses actually incurred by the employee for self and for his / her immediate family or ex-gratia compensation to family of deceased employee. To the extent support is provided by the employers, the burden on the Government is reduced.
However, the initiative of the employer or other persons, by providing monetary assistance and other support to the employees to meet COVID 19 care related expenses could result in unintended tax burden on the employees and reduce the much needed aid that is required at this critical stage. This is because the current provisions of the Income-tax Act, 1961 have very restrictive exemptions for such assistance.
Given the unprecedented, extraordinary circumstances and genuine hardship faced by the employees and their immediate family members, it is humbly submitted that tax relief may be provided to the individuals by providing an exemption from Income-tax on various forms of COVID 19 support received from employers and other persons. We also take this opportunity to reiterate our representation to allow full deduction for any direct expenditure incurred towards combating COVID 19 crisis, while computing taxable income for the year in which such expenditure is incurred regardless of whether such expenditure is classified as Corporate Social Responsibility (CSR) expense for the purposes of Companies Act 2013.
A detailed note on the taxation difficulties faced by employers and employees and our representations for tax relief is enclosed herewith for your kind consideration.
We trust our concerns and suggestions shall be favourably considered. Your immediate intervention to provide this tax relief will provide much needed impetus to the efforts of the industry to stand by with their employees in this hour of need. The support from the employers will also supplement, in some measure, the Government’s efforts.
We are of the view that the Direct-tax Vivad Se Vishwas Act, 2020 (‘VSV Scheme’) is an extremely thoughtful scheme and goes a long way in demonstrating Government’s sincere intent to reduce pending litigation and to promote a non-adversarial tax regime under its motto of easing of doing business.
However sufficient time needs to be given to taxpayer to understand and take benefit of the scheme.
For the reasons set out below, we earnestly request for extension of time-line of 31st December 2020 for filing declaration under the scheme to 31st March 2021 to enable taxpayers to take full benefit of this exemplary scheme :
1. As your Honour is aware the debilitating situation faced by tax payers on account of Covid-19 Pandemic still continues in large part. Metro cities like Mumbai, Delhi, Bangalore etc – where a majority of the large taxpayers like MNCs are situated – still are facing the brunt of the impact and do not have offices functioning to full capacity. Further, taxpayers all over India are presently focussed on resuming their business operations to the fullest extent and hence, have not been able to look into the VSV Scheme and understand its intricacies to the full extent possible.
2. Too many deadlines are there for taxpayers to comply by 31st December 2020 like finalising of accounts for year ending March 2020 for corporate tax payers, filing of Returns for non-corporate taxpayers and completion of Tax Audits and Transfer Pricing Audits being also 31 December 2020, therefore all the taxpayers and consultants are busy with the same and have not been able to able to study and digest the nuances of the Scheme and Clarifications issues there under to the fullest.
3. Though further clarifications have been issued on 4th December 2020, there are various positions that need to be clarified.
4. Further, several associations have made representations with Finance Ministry and CBDT. Also, there were many issues raised during ICAI conference on Direct Tax -Vivad Se Vishwas Bill, 2020 on 16th March, 2020 attended by Hon’ble Ma’am along with Shri Piyush Goyal (Hon’ble Minister of Commerce & Industry), during which your Honours had ensured that necessary clarifications will be issued to make VSV Scheme a success. Also, Shri Piyush Goyal had addressed several conferences and had given assurance that issues under the VSV Scheme shall be clarified.
5. It is to be noted that the Clarifications issued by CBDT vide circulars dated 22nd April 2020 and 4th December 2020 still leave several issues open, which is one of the reasons why large taxpayers like MNCs are not in a position to settle issues under VSV Scheme.
6. Clarifications on VSV Scheme were issued only on 4 December. Hence, it would be very difficult for large taxpayers like MNCs having multiple years and multiple issues under litigation, to understand and digest them and take a call on how to opt for VSV scheme.
7. Also, as your Honours are aware that many large MNCs having headquarters in US, UK, Germany etc are operating in India. The Headquarters of these MNCs are severely impacted by the COVID pandemic and also, the headquarters will be shut on account of Christmas Holidays from next week onwards, hence, getting directions from Headquarters has been even more difficult.
On account of above-mentioned issues, several large taxpayers including MNCs, whose huge tax amounts have been locked in litigations, have not been able to come forward to settle dispute under VSV Scheme.
For all these reasons we request Hon’ble Ma’am to take decision and make announcement for extension of timeline to file declaration under the VSV Scheme at the earliest. We also request Hon’ble Ma’am to inform the CBDT officials and CCIT’s across locations to resolve taxpayers’ grievances on timely basis, so that taxpayers have full clarity for coming forward to settle disputes under the VSV Scheme.
We trust that the issues highlighted above would draw your kind attention and necessary measures would be taken at the earliest to make VSV Scheme a grand and deserving success by extending the deadline for filing of declarations under the VSV Act to 31st March 2021.
Based on the suggestions received from our members, we submit herewith the Pre-Budget Memorandum on Indirect taxes for the year 2021-22 for favour of your kind consideration. Accordingly, we enclose the following :
1) GST Tax Policy and Procedural recommendations
2) Recommendations on Customs
3) Recommendations on Central Excise and Service Tax
4) Recommendations on Decriminalisation of offences under Customs
The representatives of the Chamber would be privileged to participate and interact with the members of your esteemed Department to provide any clarifications on its suggestions made in the enclosed Memorandum.
Representation on behalf of the Bombay Chamber and its Members, made in lieu of SEBI’s notification dated 29th September 2020 regarding disclosure of information related to forensic audit of listed entities.
Amendments introduced vide Finance Act 2020
1.0 The Finance Act 2020, among others, has amended following sections to change the due dates 139, Section 44AB and Section 92F of the Income Tax Act, 1961 (“the Act”).
1.1 Due date of filing of Income Tax Return in case of a company (not having transfer pricing cases) has been extended to 31st October from the earlier 30th September 2020. However, due date of 30th November applicable in case of a company (having transfer pricing cases) has not been amended.
1.2 Due date for furnishing of Tax Audit Report and Transfer Pricing Audit Report has been preponed by one month prior to the date of filing of the Return of income as mentioned above i.e. 30th September and 31st October (for assesses covered by Transfer Pricing provision).
Relaxation measures introduced due to COVID-19
2.0 The CBDT as part of relaxation measures due to COVID-19 vide Notification, has extended due date for filing of Return of Income for Assessment Year 2020-21 to 30th November. The extended due date shall be applicable for all persons. Consequent to the aforesaid extension, due date for filing of Tax Audit Report and Transfer Pricing Audit Report has been consequently extended till 31st October. In effect, no relaxation for a class of corporate assesses (ones covered by Transfer Pricing provision), for whom the dates remain unchanged.
Issues being faced by Companies
3.0 It is pertinent to note that companies having transfer pricing cases, are usually large corporates having global as well as PAN India presence.
3.1 COVID-19 has necessitated prolonged lockdown in the Country. Companies have adopted work from home, which has caused disruption in the office routine. Government has announced various relaxations, including extension of time limit in the Income Tax Act to counter unprecedented economic turbulence.
3.2 Similar extension of time limit has been provided by the SEBI and MCA for submission of annual financials, which has resulted in delay of completion of statutory audit and publishing annual results vis-à-vis normal years. This has direct impact on availability of contemporaneous data for benchmarking the transactions with Associated Enterprises for Arm’s Length Price (ALP). It may be noted that due date for TP audit returns is fixed beyond the normal due date for non-TP returns so as to enable the taxpayers and Chartered Accountants access the latest financial statements filed by different companies to perform benchmarking analysis.
3.3 It is to be noted, spate of new provisions introduced vide Finance Act, 2020, namely WHT on Dividend, TCS on sale of goods, Equalization Levy etc. require detailed preparation. Needless to mention, compliance of these provisions is not only onerous but requires changes in IT infrastructure coupled with training of personnel. Corporates have labored to comply with the new provisions. Almost all these amendments are applicable to the companies under consideration.
3.4 Further, faceless assessment and appeals launched in August 2020 too will require resource allocation by corporates as they struggle to meet deadlines in accordance with the laws framed.
3.5 The past one year is witness to historic changes being made in the field of Direct Taxes. Corporates are gearing up to meet the demands of changed architecture, while the pandemic rages on.
3.6 Due to COVID 19, the Government has also extended due dates for TDS returns, AIR filings etc. The Format of Form 26AS has also been modified to include various additional reporting. It is necessary to carefully consider Form 26AS and reconcile the information required to be submitted in the income tax return with that of Form 26AS. This will require additional efforts and time for many of the corporate entities having voluminous transactions.
3.7 Please note that due to bunching of due date for filing return for all taxpayers on 30th November whether individuals, corporate or non-corporates and/or regardless of requirement of tax audit or TP audit will cause significant administrative difficulty for Chartered Accountants responsible for issuing Tax Audit and TP Audit reports amidst the prevalent circumstances of significant restrictions on travel and office attendance. Even in past years when there were other special circumstances like late issue of new return forms or changes in audit report format, while extending due dates, the CBDT had maintained proper time interval between due dates for non-corporate, corporate and TP audit cases to avoid bunching of return filing compliance for all taxpayers on same date. The current year is an unprecedented extraordinary year which deserves even more liberal considerations.
4.0 Considering genuine hardship being faced by the companies, we humbly pray that due date for filing Return of Income as an exception, only for this year, is extended by at least one month i.e. till December 31st, 2020 specifically for corporates having transfer pricing cases. Accordingly, the due date for filing Tax audit Report and TP Audit Report for such taxpayers may be extended till 30th November 2020.
4.1 Hope to receive your immediate attention and kind consideration.
Note on ambit of Arm’s Length Pricing Principles under the Income Tax Act, 1961, Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR’).
This has reference to the webinar organised by the Bombay Chamber on Related Party Transactions on 21st August, 2020 in which you had provided SEBI perspective on the subject. During the panel discussion, you had requested Mr. Parikshit Datta, Partner, Ernst & Young LLP to send a note to you on the ALP principles under the Income tax Act and how it can be of relevance for Regulation 23 of the SEBI LODR /Section 188 of the Companies Act, 2013.
Accordingly, the said note prepared by Mr. Parikshit Datta, perused by our President, Mr. Sudhir Kapadia and Mr. Bharat Vasani, Chairman of our Legal Affairs & IPR Committee, is enclosed herewith for your kind reference. Please also find attached the annexures referred in the said note viz. (a) Text of Rules 10A to 10CA of Income tax Rules (b) ICSI Guidance Note which recommends income tax TP methods and (c) ICAI Guidance Note on Transfer Pricing audit under Income tax Act.
May I request you kindly get in touch with us, in case you need any further information or clarifications in this regard.
The Finance (No.2) Act 2019 increased the surcharge rate for individuals, Hindu Undivided Families (HUFs), Body of Individuals (BOIs) and Association of Persons (AOPs) as a measure to raise resources from ‘super rich’ taxpayers, from erstwhile maximum rate of 15% (for income above Rs. 1 Cr) to 25% (for income between Rs. 2 Cr to Rs. 5 Cr) and 37% (for income above Rs. 5 Cr).
Such increase has unintentionally adversely impacted AOPs formed by Indian companies for bidding and executing infrastructure projects. Infrastructure is the fundamental enabler for growth and has been identified by the Government as one of the five significant economic pillars for ‘Aatmanirbhar Bharat’ with a National Infrastructure Pipeline of Rs. 100 lakh crore. As AOP is a preferred mode of operation for several infrastructure companies which operate in India and abroad, higher surcharge on AOPs is counter-productive and adversely dampens the efforts to attract investments in the infrastructure space. AOP being a business entity, it seems a levy of higher surcharge intended for ‘super rich’ taxpayers is an unintentional anomaly which needs to be corrected.
Therefore, we request the Government to reduce the surcharge on AOPs to a level of 10%/15% as it was prior to enhancement by Finance (No.2) Act 2019. However, if a complete rollback is not possible, a specific carve out for infrastructure sector or relief to Indian Companies, in their capacity as member of AOP, by allowing their share of income in the AOP to be subject to surcharge rate applicable to Indian companies (i.e. 7% / 12%) instead of the enhanced surcharge rate for AOPs i.e. 25% / 37% may be considered.
A detailed representation on the issue is attached herewith for your kind consideration.
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