Pre-budget memorandum: Suggestions by ICAI
Finance Minister Nirmala Sitharaman will be presenting the full-year Union Budget for the financial year 2019-20 on 5th July, 2019. This Union Budget will be the final budget for FY 2019-20 and will supersede the interim Budget presented in February 2019 this year. Many tax experts expect that significant changes like changes to tax slabs etc will not be done in the Final Union Budget as the same has been touched upon in the interim budget. The Finance Ministry has invited suggestions from all including mass public before formulating the final budget.
Significant suggestions made by ICAI
The Institute of Chartered Accountants of India (ICAI) has also submitted its Pre- Budget memorandum on Direct Taxes and International Tax to the Government. The memorandum contains suggestions to the Government while formulating the tax proposals for the FY 2019-20.
Some important suggestions include:
- Reduction in holding period in case of immovable property: Currently, the immovable properties i.e. land and/or building, qualify as a long-term capital asset if held for 3 years or more. ICAI suggest reducing the holding period to 2 years in case of land and/or building to qualify as a long-term capital asset.
- The benefit of presumptive taxation to LLPs: Section 44AD was repealed w.e.f. 01/04/2011 i.e. from AY 2011-12.
According to the new provisions, in case of an eligible assessee engaged in eligible business, income shall be deemed equal to a sum @ 8% of the turnover or higher income as per books. (Click here to read more about this section) This section applies only to businesses run by residents Individual, HUF and Firms excluding LLP. As per the contention put up by ICAI, only section 44AD excludes LLP, for which there appears to be no cogent reason. Otherwise, under the Act, an LLP and a Firm are treated at par. This suggestion will improve tax collection by the government.
- Rationalizing provisions for Section 44ADA: The Finance Act, 2016 has inserted a new section 44ADA providing for special provision for computing profits and gains of profession on a presumptive basis. (Click here to read more about this section). ICAI has suggested few changes for rationalizing the provisions like increasing the threshold to say Rs 1 crore instead of Rs 50 lacs etc, or reducing the estimated rate of income to say 30% from current 50%.
- Increase in limit for deduction u/s 80C: Suggestion is made that the annual limit for contribution to PPF be increased to Rs.3 lakhs from the present ceiling of Rs.1.5 lakhs. Suggestion to increase in the limit for deductions like sec. 80DDB for expenses incurred on the treatment of certain chronic diseases etc is also sought.
- Minimum Alternate Tax (MAT): As mentioned by ICAI in its memorandum, since the government has already started implementing phase-out of exemptions and incentives, it is suggested that the levy of MAT should be withdrawn. ICAI has also mentioned that the MAT provisions need to be streamlined.
Some other suggestions include:
- Extending the benefit of taxfree withdrawal from NPS to non-employee subscribers under section 10(12A).
- It is suggested that section 10(23FB) be reworded as follows: “Any income of a venture capital company or venture capital fund from investment set up to raise funds for investment in a venture capital undertaking.”
- At present income of minors included in the hands of parents is exempt to the extent of Rs.1,500/- for each minor. It is suggested that this should be raised to at least Rs. 5,000/- for each minor child.
- Suggestions are also made to provide clarification related to the computation of depreciation on Slump Sale u/s 32.
- Currently, the amount paid for an increase in authorized capital is not allowed as deduction. It is suggested that fee paid to Registrar of companies for an increase in authorized capital may be allowed as revenue expenditure in 5 equal installments u/s 35D.
- It is also suggested increase the allowable expenses in the form of remuneration to working partner as it will have no impact on revenue since it is just an appropriation of profits.
- Many suggestions are made with respect to LLPs, including the treatment on capital gains, unabsorbed losses and depreciation or carried for gains / losses or treatment of capital gains on merger & acquisition of LLPs.