The year 2019 ended on a positive note with improvements in the Purchasing Managers’ Index for manufacturing and services. But with slow growth figures every quarter, uncertainties around a sustainable rebound of demand continue to weigh on economic activity.
Last year, the government significantly reduced corporate tax rates for new manufacturing companies to 15 per cent and other companies to 22 per cent. However, some other areas require attention to boost the Indian economy in the upcoming Budget.
Rationalisation of DDT
Dividend Distribution Tax at 20.56 per cent is an additional layer of tax, which is not in the nature of withholding tax, and hence, not available as a credit to the shareholder. Recipient shareholders (excluding companies) face an additional 10 per cent tax if the overall dividends they receive exceed ₹10 lakh.
There have been several representations to overhaul the DDT scheme, including to reduce the tax rate and move into a withholding tax regime which will enable shareholders to avail themselves of credit of such taxes. Such a move will result in more cash being available to shareholders, thereby, boosting domestic consumption.
Reduction in personal income-tax rates
There is a strong expectation that the government will provide relief to individual taxpayers by increasing the basic exemption limit. The government is also expected to restructure the personal income-tax rates and slabs to facilitate additional cash flow in the hands of individuals to boost consumption.
The government can also consider increasing the standard deduction against income from house properties to 50 per cent of rental income (against 30 per cent, since 2002). Additionally, increasing the interest deduction on loans borrowed for purchase/ construction of house properties to ₹5 lakh (as against ₹2 lakh at present) will help reduce the burden on home-owners and make housing more affordable.
Dispute resolution/ litigation
Many cases are stuck in various stages of litigation. Given the time involved in resolving disputes and the amounts in dispute that are locked for a long time, the government can introduce a dispute-resolution scheme for income-tax similar to that introduced for indirect tax — ‘Sabka Vishwas (Legacy Dispute Resolution) Scheme’.
This could help the government bridge the fiscal deficit gap and monetise a part of the amount stuck in litigation.
Reform LTCG tax regime
Last year, the government had indicated that it was working towards bringing tax on equity investments in line with global standards. Major economies do not have LTCG tax. The government could consider eliminating this levy to boost investment through the stock exchange.
Also, the expectation is to align the benefit of lower tax rates (as available to companies) to limited liability partnerships and provide such lower tax rate benefit to service companies (as against only manufacturing companies currently).
Digitalisation
The Budget should provide further impetus to digital payments such as UPI and credit/debit cards. Recently, the government prescribed electronic modes of payment, making it mandatory for certain classes of taxpayers to provide certain facilities to accept payments. The government’s efforts towards making India a cashless economy will drive efficiency and transparency.
Further, the government should digitalise the process of e-assessment and do away with bulky paper book filings at various forums to help save significant costs and time.
Undertaking difficult and bolder reforms, including those relating to land, labour regulations and the business environment, will not only help in reducing costs and improving the ease of doing business in India but also unleash India’s economic potential in future.
The writer is Partner – Tax & Regulatory, PwC India. Tejas Shah, Director, and Gourav Kankariya, Associate, also contributed to this article