Budget 2024: Sharing its wishlist ahead of the Interim Budget 2024, industry body Confederation of Indian Industries (CII) said the Centre should work on ways to simplify personal taxation processes, like capital gains tax,filing of tax returns, and others. It saidcontinued focus on tax certainty and ease of paying taxes for the industry is important for investor and business confidence in a bid to achieve higher growth.
Union Finance Minister Nirmala Sitharaman will present the Interim Budget 2024 on February 1, which is expected to have minimal policy announcements due to the upcoming Lok Sabha elections this year.
1. Filing revised returns
CII has said the Centre should revise the time limit for filing revised returns at least until the end of the assessment year. It said this would enable taxpayers to claim/modify foreign tax credits. Generally, December 31 is the deadline to file the belated and revised income tax returns (ITRs) for any financial year.
Taxpayers who might have missed filing the ITR in July (July 31 is the last date) can submit the revised IT returns. But one must pay a penalty in December as late charges.
CII said that more time to file revised returns would be in line with the extended timeline for submitting Form 67 for claiming such a tax credit.
As per Rule 128 of the Income Tax Rules, 1962, a resident taxpayer is eligible to claim credit for any foreign tax paid, in a country or specified territory outside India. The credit shall be allowed only if the assessee furnishes the required particulars in Form 67 within the specified timelines.
Form 67 can only be submitted through online mode. This service enables the registered users to file Form 67 online through the e-filing portal.
2.Capital gains taxation
Long-term capital gains (LTCG) are the profits that one earns when one sells off your capital assets after one year. The tax rate is 20% except on the sale of equity shares and the units of equity-oriented funds. LTCG rate is 10% over and above Rs 1 lakhs on the sales of Equity shares and units of equity-oriented funds.
CII has suggested a simplified capital gains structure. CII has said 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 per cent (short-term rate) and 10 per cent (long-term rate). The minimum holding period for long-term capital gains be set at 12 months.
For other assets (debt-oriented mutual fund units, bonds, debentures,) capital gains should be taxed taxed at 15 per cent (short-term rate) and 10 per cent (long-term rate). The minimum holding period for long-term capital gains be set at 12 months.
For immovable assets, CII recommended short-term capital gains should be taxed at the applicable slab rate and long-term capital gains at 20 per cent, with indexation benefit. The holding period limit for determining short- and long-term should be 36 months.
The Budget 2023 said the Specified Mutual Fund will no longer receive indexation benefits when computing long-term capital gains (LTCG).FM Sitharaman said that investments made in specified debt mutual funds on or after April 1, 2023, would be taxed at income tax slabs applicable to your income at the time of redemption.
Share buybacks
CII said buy-back tax should be exempted in case of listed shares wherein buy-back is under ‘open market through stock exchange’ method. Consequently, exemption under Section 12 10(34A) should also not be applicable and the transactions should continue to be subject to capital gains tax in the hands of the shareholders.
At present, a company has to pay a buyback tax of 20 per cent on the shares bought. Besides, the shareholder pays capital gains tax on the shares sold.
FICCI too said that BBT should be exempted in case of listed shares wherein buy-back is under the ‘open market through the stock exchange’ method.
FICCI said the Centre had brought in BBT to curb tax avoidance by companies using the buy-back route and given that the promoter group cannot participate in buy-back in the ‘open market through the stock exchange method’. There is no point of levying BBT in such cases. The transaction should continue to be subject to capital gains or business income tax in the hands of shareholders, FICCI said.
Direct tax-to-GDP ratio
The direct tax-to-GDP (Gross Domestic Product) ratio reached an all time high of 6.11 per cent at the end of FY23, Central Board of Direct Taxes (CBDT) data showed. Direct taxes comprise of Personal Income Tax (PIT) and Corporate Income Tax (CIT). The data shows that previous highest of direct taxes-to-GDP ratio was 6.3 per cent in 2007-08. This is the third time in the last 22 financial years when the ratio has crossed 6 per cent level.
The time series data released by CBDT also showed that between FY14 and FY23, the net direct tax collections surged by over 160 per cent to over Rs 16.64-lakh crore in FY23. As the size of nominal GDP grew by around 140 per cent, it also boosted the direct tax-to-GDP ratio.
Data highlighted that the total number of Income Tax Returns (ITR) filed in FY23 stood at 7.78 crore, showing over 104 per cent growth as compared to total number of ITRs of 3.80 crore filed in FY14. In the current fiscal, the number of returns have already crossed 8 crore.
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Now, let's discuss the concepts mentioned in the article about the Interim Budget 2024 and the wishlist of the Confederation of Indian Industries (CII):
Simplification of Personal Taxation Processes
The Confederation of Indian Industries (CII) has suggested that the government should work on simplifying personal taxation processes, including capital gains tax and filing tax returns Simplifying these processes can contribute to tax certainty and ease of paying taxes for the industry, which is important for investor and business confidence and can potentially lead to higher growth.
Filing Revised Returns
The CII has recommended that the time limit for filing revised returns should be extended until the end of the assessment year. This would allow taxpayers to claim or modify foreign tax credits . Currently, the deadline to file belated and revised income tax returns (ITRs) for any financial year is December 31. However, taxpayers who miss filing their ITR by the regular deadline (July 31) can submit revised returns but are required to pay a penalty in December as late charges.
Capital Gains Taxation
The CII has proposed a simplified capital gains structure. They suggest that capital gains from the sale of financial assets, such as equity shares, preference shares, equity mutual funds, debt mutual funds, REITs, InvITs, bonds, etc., should be taxed at 15% for short-term gains and 10% for long-term gains. The minimum holding period for long-term capital gains should be set at 12 months.
For other assets like debt-oriented mutual fund units, bonds, and debentures, the CII recommends a similar tax structure of 15% for short-term gains and 10% for long-term gains, with a minimum holding period of 12 months. In the case of immovable assets, the CII suggests that short-term capital gains should be taxed at the applicable slab rate, while long-term capital gains should be taxed at 20% with indexation benefit. The holding period limit for determining short-term and long-term gains for immovable assets should be 36 months.
Buy-Back Tax
The CII has proposed that the buy-back tax should be exempted for listed shares when the buy-back is done through the 'open market through stock exchange' method. They suggest that exemption under Section 10(34A) should also not be applicable, and the transactions should continue to be subject to capital gains tax in the hands of the shareholders.
Currently, companies have to pay a buyback tax of 20% on the shares bought, and shareholders also pay capital gains tax on the shares sold.
Direct Tax-to-GDP Ratio
The direct tax-to-GDP ratio in India reached an all-time high of 6.11% at the end of FY23, according to data from the Central Board of Direct Taxes (CBDT) Direct taxes include Personal Income Tax (PIT) and Corporate Income Tax (CIT). This ratio is an indicator of the contribution of direct taxes to the country's GDP. The previous highest direct tax-to-GDP ratio was 6.3% in 2007-08.
The data also shows that between FY14 and FY23, net direct tax collections increased by over 160% to over Rs 16.64 lakh crore in FY23. This increase in collections can be attributed to the growth in the size of the nominal GDP, which grew by around 140% during the same period.
Additionally, the number of Income Tax Returns (ITRs) filed in FY23 stood at 7.78 crore, showing over 104% growth compared to the total number of ITRs filed in FY14. In the current fiscal year, the number of returns has already crossed 8 crore.
These are the key concepts mentioned in the article regarding the wishlist of the Confederation of Indian Industries (CII) for the Interim Budget 2024.
