The new Income Tax Bill disappoints on inclusion of provisions on group taxation and removal of TDS (Tax Deducted at Sources).
Group taxation means consideration of a corporate group as a single economic unit for tax purposes. It allows for offset of profits and losses within the group. This provision complements financial consolidation of group companies that now exists in countries such as Australia, Belgium, Denmark, France, Germany, Italy, New Zealand, Spain, the UK and the US. It avoids the use of separate legal entities without economic substance for tax avoidance purposes.
According to Bombay Chartered Accountant Journal, the idea of group taxation is to reduce the burden on the holding company as it may be required to inject funds into a loss-making company without any reduction in corporate tax. Also, the holding company shall receive a return on its investment only when the subsidiary becomes profitable.
According to Sandeep Jhunjhunwala, M&A Partner with Nangia Anderson LLP, it was said that the committee (set up to recommend changes in the Income Tax Act) will consider global-best tax practices and ensure their implementation in India. “Many countries like the UK and the European region follow a concept of group taxation which makes things much simpler from a filing perspective as well as from overall tax administration perspective. We could have done by imbibing some of these contemporaneous provisions which are required at this point in time,” he said.
Other expectations
Apart from group taxation, there are other issues that needed consideration. CA Anand Bathiya, President, BCAS (Bombay Chartered Accountants’ Society), said: “On prima facie reading, the Bill seems to be a bunch-up and clean-up, ‘old wine in new bottle’ exercise. The form gets simpler with no major changes to affect the substance. Being an attempt to revamp after 65 years, the expectation was of a contemporary novel code including newer concepts such as group taxation, carry-back of losses, etc. But it seems the wait will be longer.”
Another expectation was cleaning up the complex TDS web. According to Shalini Mathur, Director – Tax and Economic Policy Group with EY India, one area which the industry hoped the Income Tax Bill to cover was TDS rate structure. Currently, there are 32 sections dealing with 37 different types of payments to residents, where the TDS rates vary from 0.1 per cent to 30 per cent. In some sections, there are varying rates of TDS depending upon status of payees or nature of payments.
“The wide variety of TDS rates creates confusion, increases compliance burden and gives rise to characterisation disputes,” she said.
Another area is the concessional tax regime under personal income tax. “The Bill could have considered retaining only the concessional tax regime, with transitional provisions to facilitate a smooth shift for taxpayers. This might have helped in further streamlining the system and reduce complexity,” she said.