The public had expected a number of benefits from the government, following the unprecedented and huge amount of COVID-induced hardships. The government has come up with various mechanisms like asset monetisation, divestment, privatisation, etc. However, from a purely direct tax perspective, there were not many significant proposals even though care was taken to not upset taxpayers with additional burdens.
Hits And Misses Of 2021
The government has successfully utilised lockdowns to make the entire assessment and first appellate procedure virtual, even though the tax-paying community was largely sceptical about it.
Recently, the Bombay High Court (HC) warned the tax department that they may have to bear costs, if cases are disposed of without granting personal hearings, even after requisitions from taxpayers.
Another public interest litigation (PIL) was filed in the Bombay HC, challenging the constitutional validity of the faceless appeal scheme. The case is on hold since the government has indicated that it would make certain amends. The scheme for the virtualisation of the second appeal forum has also been put on hold.
There is no doubt about the good intentions behind these schemes as they will go a long way in reducing costs, bringing in transparency, speedier disposal of cases, elimination of physical interface, etc. However, the government should take these steps in a transparent manner and implement them without any bias.
The implementation of equalisation levy has created anxiousness in the industry. The amendments made in 2021 have seemingly expanded the scope and applicability of the levy from e-commerce sectors to other businesses as well. There have been instances where transactions between group entities were subject to the levy, merely because they were carried out electronically.
Clarity is also required on the scope of equalisation levy and it would be advisable to restrict it to the e-commerce sector alone.
Even though many unicorns have emerged from India in the last few months, it may not be incorrect to state that the start-up economy is yet to find its potential.
Investors continue to remain excited about the start-ups in India and they are expected to contribute to the growth. However, for a country of India’s size and scale, it is imperative that we promote as many investors and start-ups as possible to unleash great growth potential.
Income-tax exemptions played a critical role in attracting investments in start-ups. Such exemptions are due to expire by March 2022. The start-up ecosystem hopes that the government will continue to extend the exemptions.
Pursuant to the agreement within G20 countries, it is also expected that the taxation of digital economy will take one form or the other and a globally acceptable system of taxation will be introduced soon!
Cryptocurrencies have gained considerable traction across the world due to its uniqueness. Pursuant to the Supreme Court reversing the ban imposed by the Reserve Bank of India, a lot of traction is there in India.
The government intends to introduce a Bill in the current session itself to provide a roadmap for certain cryptocurrencies while prohibiting private cryptocurrencies. It is also expected to provide a facilitative framework. The other aspect that is going to be crucial is the taxability of income accruing to persons holding cryptocurrencies.
While it is understood that income from cryptocurrencies would be taxed in India, the basis, manner and quantum of income has been a matter of debate. If a mechanism is introduced, it may have a destabilising impact on the market and cryptocurrency investors. The government has already hinted that the upcoming budget could see some taxation proposals. This would be a welcome move.
The pandemic had prompted many businesses to review their existing models, which had resulted in a surge of mergers and acquisitions across the board.
Non-resident buyers, expectedly, want a withholding tax certificate, specifying the taxes required to be paid in India, and also, in certain instances, a no- objection certificate since the tax department has the power to void a transaction in case of pending proceedings.
Because of the pandemic, it has become difficult for Indian businesses to chase the authorities to obtain an NOC. Since many of these transactions are time- sensitive, they would have to pick the less-risky proposition. Therefore, it is essential to streamline the process of NOC in a seamless manner and issue the certificates within a week, especially in cases where there are no pending tax proceedings.
(VP Thangadurai, Principal Associate, Cyril Amarchand Mangaldas, contributed to this article.)SR Patnaik is Partner & Head – Taxation, Cyril Amarchand Mangaldas. Views are personal and do not represent the stand of this publication.