Realignment of income tax slabs for individuals, facilitation of overseas listing for companies, and rationalisation of TDS/TCS provisions are among the expectations from the upcoming Union Budget listed by KPMG, one of the Big Four accounting organisations.
The firm said clarity is needed on the non-taxability of Covid vaccination, medical supplies and benefits extended by employers to employees and their families. KPMG highlighted that since substantial costs are involved in Covid treatments, there should be a provision of separate deductions for such costs incurred by taxpayers for themselves and their families.
It said the government should allow depreciation on goodwill arising from taxable transactions.
There is a need for a regulatory framework to facilitate the listing of Indian entities abroad via the direct or the special purpose acquisition company (SPAC) route as well as tax exemptions for such overseas listings. In view of the increase in cross-border mergers, tax neutrality should be extended to outbound mergers involving Indian entities.
The headline corporate tax rate for foreign companies, including bank branches, should be reduced to harmonise them with rates applicable to domestic companies.
KPMG expects provisions for tax deducted at source (TDS) and tax collected at source (TCS) to be relaxed. All securities, including derivatives, should be excluded from TCS/TDS provisions applicable to the sale and purchase of goods.
Other expectations include the harmonisation of provisions applicable to nonbanking finance companies with those for banks, including specifically by increasing the limit of deduction for non-performing assets provisions, exempting TDS on interest income, and exempting them from thin-capitalisation provisions.
The firm expects clarity on Base Erosion and Profit Shifting 2.0 (BEPS 2.0) and Significant Economic Presence (SEP) implementation, including timelines for implementation of Pillar 1 and Pillar 2 proposals in India (with a schedule for withdrawal of the equalisation levy) and enabling public consultation on implementing legislation prior to enactment.
BEPS is an initiative of the Organization for Economic Cooperation and Development that seeks to close gaps in international taxation for companies that allegedly avoid taxation or reduce the tax burden in their home country.
Pillar 1 refers to an agreement on international tax rules that require a physical presence in a country before that country has a right to tax. Pillar 2 pertains to the agreement on a global minimum level of taxation.
In addition, the KPMG note mentioned the framing of rules to determine income that is attributable to an SEP in India alongside exemption from return-filing requirements for non-residents having an SEP in India if their income is not taxable under treaties.
It said exemption should be accorded to dividend income in the hands of shareholders received from a company operating in the Indian Financial System Centre (IFSC).
Weighted deduction for R&D expenditure should be reinstated to encourage innovation of new products and technologies, especially in the pharmaceutical and healthcare industry.
The government should consider the inclusion of petroleum products in the goods and services tax regime.
Input tax credit should be allowed on goods and services used during the pandemic as part of corporate social responsibility. Many companies have undertaken significant welfare measures by supplying free PPE kits, sanitisers, masks and other necessities to the government, local bodies and healthcare workers as a part of their CSR initiatives.