As the date of the Union Budget 2021 nears, various industry associations and taxation experts have been making suggestions to the finance minister for easing the burden on taxpayers.
Here are some key recommendations given by the Bombay Chartered Accountants' Society, Indian Merchants Chambers (IMC) of Commerce and Industry and the Association of Mutual Funds of India (AMFI) to the finance ministry.
A suggestion has been made to permit deduction for society maintenance and other monthly charges paid against rental income to ensure only real income is charged. Several litigations are going on in various courts regarding this aspect, explain chartered accountants.
Also, you need to purchase or construct a fresh property within two years to set off the capital gains earned on the sale of an old property. The timeline was initially extended up to September 29, 2020. But an additional extension is being requested considering the situation of senior citizens. “The period to avail tax exemption for property purchase or construct property due to COVID-19 pandemic should be further extended upto March 31, 2021,” Paras Savla partner at KPB & Associates.
Additionally, tax deductions for capital gains earned from selling a house under Section 54F are available if the new house construction is completed in three years. “Currently projects do not get completed in three years. So, it is essential to amend this section and increase the period to five years as the tax liability is significant and filing an appeal is a time consuming and costly affair for any lay man,” adds Savla.
The interest deduction available under Section 24 (1) has been amended to permit the construction of property within five years instead of three years as was required earlier.
The COVID-19 pandemic has forced many people to either stay put in India during their visit or return home due to colleges being shut. This affects the number of days they spend in India and, therefore, their taxation liability.
Non-resident Indian (NRI) investments in mutual funds attract tax deducted at Source (TDS) of 15-30 percent on their capital gains based on the schemes and whether those are long-term or short term in nature. The TDS rate for rental income paid to NRIs is 30 percent.
If an NRI loses his NRI status and is considered resident due to the number of days spent in India (more than 120 days annually starting FY 2020-21, instead of the earlier 182 days and if he has lived in India for less than 729 in the last 7 financial years) then he is considered to be a resident and non-ordinary resident. Change in status would mean that their global income - which is normally not taxable in India - can get taxed in India as they would be considered a resident.
For calculation of residency and tax status as a non-resident Indian, an exemption was granted for the period between 22 March 2020 and 31 March 2020 for FY19-20 for those who have been forced to stay in India due to COVID-19 Pandemic. However, no clarification has been issued for FY 20-21, which could result in increased tax liability for some NRIs.
“While it is correct that the NRIs could have returned through the repatriation flights that were arranged. But many have stayed back to tend to their aging parents and even students were forced to stay as hostels were shut. There are significant number of people who would face a higher tax liability if no relaxation is granted,” says chartered accountant Gautam Nayak.
Another issue raised by Bombay Chartered Accountants' Society is a leeway for tax residency certificate for small transactions. To avoid double taxation an NRI needs to submit the Tax Residency Certificate for even small TDS transactions for MF redemption or share dividends. This procedure takes 2 months.
This association has requested that a threshold of Rs 1 crore per individual per annum be introduced to reduce the hardships and time involved in obtaining a tax residency certificate and submit the same.
Extension of limits
The tax exemption limits under many provisions had been issued in the 1990's-early 2000 and need to be enhanced based on the current situation. The limits for clubbing of minor's income (1500), gifts (Rs 50,000), amount received after voluntary retirement (Rs 5 lakh), interest-free loan perquisite (Rs 20,000), medical treatment outside India (Rs 2 lakh), children's education allowance (Rs 100 per month), children's hostel allowance (Rs 300 per month) and mediclaim (Rs 25,000 self and Rs 50,000 for senior citizen parents) need to be enhanced.
Mayank Bathwal, CEO, Aditya Birla Health Insurance, says, “Family health insurance premiums versus the tax benefits are skewed. Hence, it becomes important to increase the limits defined for mediclaim premium tax deduction under section 80D of the Income Tax Act to Rs 1,00,000 ( Rs 50,000 for self and spouse plus Rs 50,000 for parents). Further, allowed dependent relationship should be re-looked.”
The overall limit of deductions under Section 80 C too needs to be enhanced.
“The last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) was in 2014 and an upward revision is long overdue,” says Anuj Puri, Chairman - ANAROCK Property Consultants.
As per advance tax provisions, the total income for the year must be calculated and a percentage of the total tax for the whole year must be paid in each quarter (15 percent by June 15, 45 percent by September 15).
Now, due to COVID-19 and the fact that people have been working from home and business has been affected, experts say that it is difficult for taxpayers, especially those who are self-employed and freelancers, to predict the annual income, by June 15. Also, anyone earning more than Rs 10,000 needs to pay the advance tax, failing which an interest is applicable from the June quarter upto the final tax payment. The threshold should be enhanced to Rs 1 lakh; some associations have infact asked for advance tax requirement to be done way with, completely.
Make mutual funds’ taxation on par with ULIPs
Although unit-linked insurance plans (ULIP) are market-linked investment products (with an insurance wrapper around them), ULIPs are more tax-efficient than mutual funds.
AMFI wants tax parity between mutual funds and ULIPs. Apart from that, AMFI has also proposed that the income threshold for TDS deduction for dividends be raised from Rs 5,000 to Rs 50,000.