The Economic Survey 2023, tabled before the parliament by the Financial Minister Nirmala Sitharaman reviews the performance of the Indian economy to date and lays the road ahead for the next fiscal year.
The reforms initiated by the government in recent years have ensured the development of a trust-based tax system. Progress has been made to move to an efficient and effective tax administration, which honors honest taxpayers and provides better taxpayer facilitation while advancing the government’s policy of facilitating voluntary compliance.
The survey also lists the measures taken, in the direct tax regime to ensure ease of compliance and better voluntary disclosure of income, by the Central Board of Direct Taxes ( CBDT ) along with incentives and steps taken to reduce tax litigation.
In promoting the ease of compliance for taxpayers, Central Government and the Board of Direct Taxes (CBDT), took the following initiatives and measures:
● A new scheme of updated return has been introduced in the Income Tax Act of 1961, which facilitates the taxpayer to voluntarily update his return anytime within two years from the end of the relevant assessment year by paying an additional tax. This scheme encourages voluntary compliance and reduces litigation.
● The scope of information in the pre-filled Income Tax Returns (ITR) has been further expanded
by including information such as house property income, capital gains from securities, bank interest, and dividends to make tax compliance more convenient.
● A new provision to affect business reorganization had been made under the Income Tax Act, 1961, requiring the successor entity to file a modified return within six months of the order of the reorganization being passed by the Competent Authority.
● The procedures for assessment, appeal and levy of penalty under the Income Tax Act have been made faceless by eliminating the human interface between the Assessing Officer and the assessee, optimizing the use of resources through functional specialization and streamlining the procedures to enable efficient implementation.
Reduction in Litigation
● A Dispute Resolution Committee is constituted to reduce litigation and give an impetus to dispute resolution for small taxpayers. A taxpayer having taxable income up to ₹50 lakh and disputed income up to ₹10 lakh shall be eligible to approach the Committee. The procedure of the Committee will be conducted electronically to ensure efficiency, transparency and accountability.
● Taking forward the policy of litigation management and to avoid repetitive appeals, a new provision has been made under the Income-tax Act, 1961, wherein if a question of law in the case of an assessee is identical to a question of law pending in appeal before the jurisdictional High Court or the Supreme Court in his case or any other case, the filing of further appeal to the Appellate Tribunal or the jurisdictional High Court in the case of the assessee shall be deferred till such question of law is decided by the relevant Court subject to certain conditions.
Measures undertaken to curb tax evasion and to facilitate the widening of the tax base include:
● A formal mechanism of sharing information through the Annual Information Statement (AIS) and e-Verification scheme has recently been enabled. These measures further the aim of widening and deepening the tax base by ensuring authorities possess all relevant financial information of an assessee, thus allowing access to such information to a taxpayer for accurate filing of his return of income.
● The Finance Act 2022 has also introduced specific provisions for the taxation of virtual digital assets (VDA), where the transfer of VDA is to be taxed at the rate of 30% with no deduction in respect of expenditure (other than the cost of acquisition) to be allowed. Moreover, loss from the transfer of virtual digital assets cannot be set off from any other income and cannot be carried forward to subsequent years.
Further, the transfer of VDA is subject to TDS of 1% of the transaction value (whether in cash/ kind/ both). The gift of VDA would also be taxed in the hands of the recipient.
● Deduction of tax at source (TDS) on benefit or perquisite in respect of business or profession has also been introduced in Finance Act 2022 to widen and deepen the tax base. A person providing any benefit or perquisite to a resident would deduct TDS of 10% of the value or aggregate of the value of such benefit or perquisite (whether in cash/kind/ both).
● Finance Act 2022 has provided that no set off of any loss shall be allowed against undisclosed
income detected during search and survey operations to bring certainty and increase deterrence among tax evaders.
● Vide Finance Act 2022, provisions applicable to bonus stripping have also been made applicable to securities. It has also been provided that the provisions on bonus stripping and dividend stripping shall also apply to units of an Infrastructure Investment Trust or a Real Estate Investment Trust, or units of Alternative Investment Funds.
Tax incentives put in place to promote voluntary taxation include:
● Finance Act 2022 has provided income tax relief to the amount received by a taxpayer for medical treatment from an employer or from any person for treatment of Covid-19 during FY 2019-2020 and subsequent years. Income-tax relief has also been provided to ex-gratia payment received from the employer/ other person by family members of a person who has died on account of Covid-19 during FY 2019-2020 and subsequent years.
● Tax relief has also been widened to the persons with disability. The payment of annuity and lump sum amount from insurance scheme is to be allowed to differently abled dependent during the lifetime of parents/guardians, i.e., on parents/ guardian attaining the age of 60 years or more and where such contribution to the scheme has been discontinued.
● To bring parity between employees of State and Central government, the tax deduction limit on employer contribution has been increased from existing 10% to 14% of salary in NPS tier-I Account for State Government employees as well. This would also help in enhancing social security benefits.
● To promote start-ups, the Income Tax Act of 1961 allows for a deduction of 100% of the profit and gains of eligible start-ups for three consecutive years out of ten years. However, due to Covid-19, there have been delays in setting up such eligible businesses. To lend a supporting hand to these start-ups, the period of incorporation of the eligible start-up has been extended to 31.03.2023 vide Finance Act 2022.
● To provide a level playing field between cooperative societies and companies, the alternative minimum tax rate paid by cooperatives has been reduced from 18.5% to 15%. Further, surcharge on cooperative societies has been reduced from 12% to 7% for those having total income of more than ₹1 crore and up to ₹10 crore.
● For concessional tax regime to establish a globally competitive environment, the date of commencement of manufacturing or production of an article or thing for a newly established manufacturing entity for availing 15% concessional tax rate under Section 115BAB of the Income-tax Act, 1961 has been extended from 31st March 2023 to 31st March 2024.
● Over the past few years, several tax concessions have been provided to units located in the International Financial Services Centre (IFSC) under the Income-tax Act, 1961, to make it a global hub of the financial services sector. To further incentivise operations from IFSC, the following have been made exempt from tax subject to specified conditions vide Finance Act, 2022:
i. Income of a non-resident from offshore derivative instruments
ii. Income from over-the-counter derivatives issued by an offshore banking unit
iii. Income from royalty and interest on account of the lease of a ship
iv. Income received from portfolio management services in IFSC
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