Anti-tax evasion has been at the forefront of the central government’s policy agenda as it seeks to strengthen its tax base, with the latest Finance Bill introducing over 10 clauses to check leakages in real estate transactions, rental income, partnership fees and capital gains.
Anti-tax evasion has been at the forefront of the central government’s policy agenda as it seeks to strengthen its tax base, with the latest Finance Bill introducing over 10 clauses to check leakages in real estate transactions, rental income, partnership fees and capital gains.
Of the 13 new provisions aimed at checking tax evasion, five relate to tax deducted or deducted at source (TDS or TCS), widening the scope of transactions tracked by the Income Tax Department. TDS rates have been reduced in seven transactions and waived in one, but the tool will be rolled out more broadly going forward to enhance monitoring of transactions.
Of the 13 new provisions aimed at checking tax evasion, five relate to tax deducted or deducted at source (TDS or TCS), widening the scope of transactions tracked by the Income Tax Department. TDS rates have been reduced in seven transactions and waived in one, but the tool will be rolled out more broadly going forward to enhance monitoring of transactions.
In an interview with Mint, Revenue Secretary Sanjay Malhotra said the 13 specific measures are aimed at preventing tax evasion and widening the tax base. These measures aim to provide greater clarity to regulations, increase scrutiny of transactions and plug loopholes.
Doesn’t work anymore
Fees paid to Indians for professional or technical services covered under section 194J of the Income Tax Act will no longer be considered as “work” but will be covered under a separate section, 194C. The withholding tax rate under the former section ranges from 2-10% depending on the type of payment, whereas in the latter it is 1-2%. This change will result in more types of work falling under the higher tax rate category.
Again, TDS will also be levied on interest earned above ₹10,000 on floating rate savings bonds issued by the government or any other securities as notified.
Real estate transactions have historically been a source of tax evasion and black money. Many real estate transactions have tried to evade the TDS radar by splitting the buyers. The Finance Bill has sought to curb this tax evasion by proposing that on the sale of non-agricultural land worth Rs 5 lakh and above, the total amount paid by all buyers to the seller be considered in computing the TDS liability.
The Finance Bill states that income from residential property will no longer be counted as business income and henceforth only individuals or Hindu undivided families (HUFs) will be able to avail capital gains tax exemption on transfer of capital assets by gift, will or irrevocable trust.
“Some revenue will be generated by taxing the share buyback amount in the hands of shareholders as dividend. Some people were classifying house rental income as business income. If it is shown as business income, the net profit chargeable to tax will be lower, hence it has been clarified that it is income from house property,” the revenue secretary explained, citing provisions of the bill. Payments to partners in partnership firms will also be subject to withholding tax, Malhotra said.
Room for simplification
Experts say there is scope for simplification and reduction in compliance burden when it comes to TCS and TDS.
“If the same information is already publicly available or available with another regulatory body (GST, for example, creates a history of transactions), there should be no need for withholding or deduction,” said Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI) and a tax expert.
As part of the anti-tax avoidance measures, the Finance Bill also proposes a methodology for valuation of public offerings of unlisted shares and clarifies that non-deductible non-business expenses of life insurance companies must be added to their profits and revenues, and that payments made in settlement of claims for breach of laws issued by the government will not be recognised as business expenses.
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