Extend deadline to file revised tax returns; rationalise capital gains tax: CII Budget expectations for direct taxes

CII has recommended that the time limit for filing revised returns be extended at least until the end of the assessment year to enable taxpayers to claim/modify foreign tax credit.

The industry body, the Confederation of Indian Industry (CII), has released its list of key proposals for Budget 2024. To simplify personal taxation, it has made suggestions relating to capital gains tax and the time limit for filing tax returns, among others.

Here are some of the personal tax-related budget recommendations made by CII.

Rationalisation of capital gains taxation: For long, there have been demands for simplification of the prevalent complex capital gains taxation regime. One, the rates of taxation, and two, the holding period (cut-off period to determine whether the gain is short- or long-term) vary across different asset classes. Apart from that, in the case of some assets, the indexation benefit applies, while in others, it does not.

CII has suggested a simplified capital gains structure. It has recommended capital gains from the sale of financial assets, such as equity shares, preference shares, equity mutual funds, debt mutual funds, REITs, InvITs, bonds, etc., be taxed at 15 percent (short-term rate) and 10 percent (long-term rate), and the minimum holding period for long-term capital gains be set at 12 months.

For other non-financial assets, such as immovable property, short-term capital gains should be taxed at the applicable slab rate and long-term capital gains at 20 percent, with indexation benefit. The holding period cut-off for determining short- and long-term should be set at 36 months. That is, if such an asset is sold after being held for 36 months or longer, the capital gains, if any, should be treated as long-term, CII has proposed.

Remember, the long-term capital gains tax and indexation benefits for debt funds were removed in 2023. CII’s recommendation, in effect, is to bring back the capital gains tax benefits and put them on par with equity funds.

Taxation of share buybacks: A share buyback involves a company buying back its shares from its shareholders at a premium. A company can do this in either of two ways – via a tender offer or an open market offer.

Currently, in the case of the open market route, the company pays a buyback tax of 20 percent on the shares bought, and at the same time, the shareholder pays capital gains tax on the shares sold.

The CII report recommends that in the case of listed shares, where there is a buyback under the open market route, companies should be exempt from the buyback tax. Consequently, shareholders should continue to be subject to capital gains tax.

Extended timeline for filing revised returns: CII has recommended that the time limit for filing revised returns be extended at least until the end of the assessment year to enable taxpayers to claim/modify foreign tax credit. This is to bring it in line with the extended timeline for submitting Form 67 for claiming such a tax credit.

Form 67 is a statement of income from a foreign country with a foreign tax credit. If a taxpayer has paid tax in any foreign country, he/she can claim tax credit for this in India by submitting this form. In August 2022, the tax department extended the timeline for furnishing Form 67 with effect from April 1, 2022.

For more details, read: Foreign tax credit: Form 67 submission date extension alone is no big relief

At present, the last date to file a return is July 31 in an assessment year. You can file a belated return until December 31, which is three months before the end of the assessment year, but you must pay a penalty. It's important to note that after December 31 of that assessment year, you cannot voluntarily file your returns. If the I-T department selects your return for scrutiny later, they will inform you about the necessary actions to be taken. As per income tax laws, returns can be revised within three months before the end of the assessment year.

Perquisite (perk) tax in respect of electric cars: A perk is any benefit (monetary or non-monetary) that an employee receives in addition to the salary from the employer. In this context, the taxation of the perk of a motor car provided by the employer depends in certain cases on whether the cubic capacity (cc) of the engine is up to 1,600 cc or beyond.

Since this metric does not apply to electric vehicles (EVs), another one needs to be introduced for the calculation of perquisite taxation. CII has recommended that an amendment be made to the Income Tax rules to clarify the criteria for perquisite taxation of EVs provided to employees by employers.