De-Tax. Budget expectations: We need simpler tax laws

The Centre has been working to overhaul redundant tax policies, clarify ambiguous provisions of the law, and issue detailed guidelines on new regulations.

Despite sincere efforts, some provisions remain however vague and outmoded, leading to an increasing number of tax disputes and, at times, perverse assessments.

It is expected that Budget 2020 would serve as a means to address perplexities around taxation laws, thereby making taxpayers happy without impinging their funds too much.

Remove undue hardships

Let’s take the case of Section 194-IA of the Income Tax Act which requires every person purchasing an immovable property for a consideration exceeding ₹50 lakh, to deduct tax at the rate of 1 per cent of the payments made to the seller.

TDS is a concept that was introduced to streamline the incidence of tax so as to afford a regular flow of tax funds to the government. However, the TDS provisions under Section 194-IA are causing undue hardship to taxpayers who wish to claim exemption from capital gains by re-investing sale proceeds/capital gains in specified assets under Sections 54/54F/ 54EC of the Income Tax Act.

The seller receives the consideration net of TDS, thereby lessening the funds at disposal for further re-investment.

Also, the TDS liability in a number of cases appears to be unwarranted, and taxpayers need to wait until the due date of filing of returns in order to claim refund of any excess tax deducted.

In order to relieve taxpayers of such excess TDS burden, the government should permit them to make an application to the assessing officer under Section 197A for lower/no deduction of tax at source, declaring their intent to re-invest the sale proceeds in permissible investment channels.

Additionally, an assessing officer, on being satisfied that the total income of a person justifies the deduction of income tax at lower rates or no deduction of income tax, can issue a certificate under Section 197, directing the deductor to deduct tax at the rate specified in the said certificate. The Income Tax Act, in this regard, prescribes no time limit for issuance of such certificates. Consequently, the applications, at times, not timely disposed, result in needless inconvenience to taxpayers.

Through Budget 2020, the government may prescribe a suitable timeline for disposing such applications at lower/ nil rate of tax deduction, which shall not only speed up the process but also ensure that there is no delay in rightful benefit for eligible taxpayers.

Exterminate disparity

Further, as per the Income Tax Act, long-term capital gains (LTCG) arising on asset sale may be re-invested in specified assets (bonds of RECL/NHAI) under Section 54EC to claim tax exemption of up to ₹50 lakh.

The time limit for investment in the specified bonds is six months from the date of transfer. Taxpayers often inadvertently fail to claim the benefit offered under the Section because of stringent timelines.

Akin to other provisions of the Income Tax Act governing capital gain exemptions, the time limit for investment in specified bonds under Section 54EC may be allowed up to the due date of furnishing of return of income.

By removing this disparity, taxpayers would be in a better position to decide which re-investment option works best for them.

Further, claiming deduction under Section 54/ 54F seldom comes as a challenge as these sections allow exemption only when the new residential house property, after the sale of the old one, is purchased either one year before or two years after the date of sale, or if the same is constructed within three years of the date of transfer.

However, practically, it sometimes takes more than the prescribed time limits, especially in the case of township projects by developers.

The buyers are thus not in a position to claim exemption, owing to construction delays.

The government, should, therefore, either increase the time limit to invest in a new house to at least five years, or clarify that the taxpayers shall be allowed deduction for all investments made within the given time limit even if the purchase or construction is not completed within the stipulated time limits by the developer.

However, the government’s recent efforts to build a favourable tax regime for genuine taxpayers cannot be disregarded.

Augmenting simplicity and removing impediments would go a long way in increasing compliance and facilitating good governance.

The writer is Partner, Nangia Andersen