Budget 2016: Reducing Litigation and Providing Certainty in Taxation

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Ruchi Patel, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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With huge amount of investments in the rural sector and relief for small tax payers, Union Budget 2016 was largely pro-rural and pro-poor with focus on the rural sector, electrification and infrastructure.

Finance minister Arun Jaitley laid the target of containing India’s fiscal deficit to 3.9 per cent this fiscal year, 3.5 per cent in FY17 and 3 per cent in FY18 and emphasizing on three priorities namely strengthening India’s firewalls by ensuring macroeconomic stability and prudent fiscal management; driving growth through domestic demand; and reforms to boost economic opportunity.

On the other hand, budget also catered to the expectations of the individuals. Despite unchanged tax exemption limits, tax slabs, the budget did tend to address the deduction limits and unwind the India’s Tax Amnesty Scheme. The Budget tends to be of interest to the individuals by bringing:

 

  1. Relief to small tax payers
  2. Measures to moving towards Pension Society
  3. Measures for Promoting Affordable Housing
  4. Reducing litigation and providing certainty in taxation
  5. Simplification and rationalization of Taxation

 

Reducing litigation and providing certainty in taxation:

Notable measures have been taken to provide certainty in taxation regime, simplification and rationalisation of taxes and reduce tax litigation.

Some of the measures proposed are the Income Tax Declaration Scheme providing a limited compliance window to declare undisclosed income and assets, Direct Tax Dispute Resolution Scheme to reduce the backlog of cases stuck in appeal and realize tax arrears; waiver of interest and penalty for settling indirect share transfer disputes, rationalization of penal provisions and other administrative measures.

Proposal includes procedural simplification in areas like the rationalization of the withholding tax provisions, exemption from the requirement of non-residents having to obtain PAN to receive payments without penal withholding, legal framework for paperless assessments, speedy disbursement of refunds out of appeal effect, etc.

An Indirect tax Dispute Resolution Scheme, 2016, being introduced wherein in respect of cases pending before Commissioner (Appeals), the assesse, after paying the duty, interest and penalty equivalent to 25% of penalty imposed, can file a declaration. The proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain cases.

Retail Sale Price [RSP] based assessment of excise duty being extended to all goods falling under heading 3401 and 3402 with the abatement rate of 30%.

Retail Sale Price [RSP] based assessment of excise duty being extended to: a) aluminium foils of a thickness not exceeding 0.2 mm [with abatement of 25%]; b) wrist wearable devices (commonly known as ‘smart watches’) [with abatement of 35%]; and c) accessories of motor vehicle and certain other specified goods [with abatement of 30%].

The Budget has proposed limited period compliance window for domestic tax payers to declare undisclosed income on which tax and penalty totalling to 45% would need to be paid. There would be no scrutiny or enquiry in relation to these declarations and declarants would also have immunity from prosecution.

Various other measures such as reducing the penalty in specified cases, payment of interest by Government at 9% (in lieu of the present 6%) in case of delay in giving effect to Appellate Orders, e-assessments for all assessees in 7 mega cities etc have also been proposed.

In light of above benefits, budget could be seen as an economic growth booster & promoter of individual development. In conclusion, Budget can be seen as impressive and sets the tone for course correction, both at the fiscal as well as the regulatory front.

 

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