Budget 2014: Govt should extend Section 80C deduction limit for individuals, says Sanjay Sanghvi
July 9, 2014
As the nation gears up for the first Budget to be presented by the new government and looks forward to the 'ache din' (good days), the following are some key aspects affecting the industry which require urgent consideration and attention of the finance minister.
1. Basic exemption limit and benefit of investments
Further, the government should also consider increasing the deduction available to individuals under Section 80C in order to account for inflation and also to promote savings in the form of investments in financial instruments to provide a boost to sectors such as infrastructure, real estate, etc. The government should also consider increasing the quantum of deduction available on interest paid on home loans.
2. The (in)famous 'Vodafone law' - Retrospective amendment
As per the current law, any transfer of a capital asset outside India by a non-resident would be taxable in the country if such capital asset derives its value 'substantially' from assets located the country. The word 'substantially' is not defined in this context. The expert committee set up by the government to review the law had recommended a threshold of 50 per cent of the global assets of the company/entity for this purpose. There is an urgent need for the government to clarify the meaning of 'substantial' interest in India.
3. Deduction of 'CSR' payments
However, the tax treatment of this expenditure is not clear. While one would like to believe that this expenditure would be allowed as a deduction in computing the taxable profits of the company, the Direct Taxes Code Bill, 2013 in its current form does not allow a deduction for the CSR expenditure in computing the taxable income. In light of the ambiguities prevailing, a clarification under the Income-Tax Act, 1961, regarding the treatment of the expenditure amounts is required.
4. Allowing the deduction for interest cost for acquisition of controlling/strategic interest in businesses
The government may specify a minimum threshold of shares (say 26 per cent) for investments to qualify as strategic investments. Indian entrepreneurs as well as established companies, require a lot of funding for the purpose of making new investments. This funding also usually has a huge interest cost attached to it. This interest cost should be allowed as a deduction.
5. Relief from recovery of disputed tax demand while appeal is pending
Many times, in high pitched tax assessments, there is unnecessary pressure on the taxpayers to pay the disputed tax demands even though they have filed an appeal which is being heard by the appellate authority and the ruling/verdict is awaited. In practice, because of the pressure of revenue targets form higher tax authorities, the tax officers express their inability to wait for a few days or few weeks till the verdict of the appellate forum, which has already heard the appeal of the taxpayers, is given.
The Central Board of Direct Taxes should issue instructions to the field officers that where appeal is already heard and the order is awaited, no coercive measure should be taken for recovery of such disputed tax demands till the time the concerned appellate forum has pronounced its verdict/ruling. This would give a huge relief to the taxpayers.
6. Authority for Advance Rulings
(The views and opinions expressed herein are those of the author and do not necessarily represent the views of Khaitan & Co.)