E-filing of TDS (tax deduction at source) returns is one development in India's income tax departments that the new Finance Minister P Chidambaram might appreciate.
E-filing of TDS has been made mandatory and one consolidated return has been prescribed for various sections dealing with TDS.
But this good work need not stop here. It needs to be extended to some more areas of TDS to reduce room for legal disputes. Of late, it has been seen that many disputes are related to whether a particular expense would fall under section 194C or 194J or 194I!
The ideal situation would be to have just one section with a uniform rate of 5 per cent so that the exchequer does not lose revenue and the industry stops getting into a dispute-mode.
TDS certificate
Another inequity which the finance minister may try to sort out is related to the issuance of TDS certificates. Under Proviso to Rule 31, a consolidated certificate for total TDS can be issued in Form 169A, but only at the request of the payee.
Going by the provision, the payer has no option to issue such certificate even without the request of the payee! Such a system needs to be amended to put the payer at equal footing as it would have the following advantages:
TDS on rent
Under section 194I, separate rates have been prescribed for deduction of tax at source for Individual/HUF and other assessees. A classification has also been made between corporate and non-corporate for provisions under payments to contractors under section 194C, professionals under section 194J and Interest under section 194A.
In view of this different classification in section 194I, the partnership firms which, under other provision of TDS is classified as non-corporate assessee falls under the corporate assessee category for TDS under section 194I (rent).
In case of companies which are operating with globally integrated ERP module, it becomes very difficult to create set-ups for payee to be treated as a corporate under section194 I and the same payee as non-corporate under other provision if he is a landlord and also providing other services to the company.
This set up becomes much more difficult in the years when the surcharge rates are different for corporate and non-corporates. In such case although under section 194I partnership firm will be in the same category as that of corporate assessee, but the surcharge rate applicable to them will be different from the corporate assessee.
Such set-ups are cost-ineffective and too elaborate to be created in global ERP module and sometime require manual intervention.
It is against the spirit of the implementation of a global integrated ERP Module. It is thus suggested that under section 194I also, the classification for different rates should be made between corporate and non-corporate assessee.
Principal component in housing loans
A common grievance for most housing loan takers is that the fiscal sops linked to the repayment of principal component of a loan is too low and this ceiling must be hiked to at least Rs 50,000 annually.
True, in proportion to the interest payment, a limit of Rs 20,000 is too ludicrous and the finance minister needs to understand it in right perspective to overcome the housing problem faced by most middle-class families.
Given that the government has failed to provide houses at affordable cost to its citizens, this is the minimum it should be doing if it really cares for its ordinary citizens.
Housing loan
As per the Rule 3(7), housing loan given at a rate below SBI Housing Loan Rate will be treated as perquisite value. It is to be appreciated that under section 24 of the Income Tax Act, a deduction is allowed for interest paid on housing loan for computation of income under the head 'House Property.'
In this connection, if the differential rate of interest (i.e. interest charged by the employer and interest prescribed within rule 3 (7) although not paid by the employee) should also be considered as interest paid for the purpose of deduction under section 24.
In case the said amendment is not made in the rules, the employers may opt to recover the interest at the State Bank of India rate (as prescribed under Rule 3) and provide a special allowance for the differential interest by keeping the income of the employer and employee unchanged.
To elaborate this further, if one employee is paying 4 per cent interest and thereby liable to pay tax as perquisite on the differential 6 per cent (assuming SBI rate at 10 pre cent), and the second employee is paying 10 per cent interest and getting special allowance for differential 6 per cent.
In both the cases, the total earning of the employees net of interest payment on the housing loan remains unchanged.
In both the options, the net cost to the company remains unchanged.
The first employee is entitled to deduction of interest from income from house property @ 4 per cent only whereas the second employee will be entitled to deduction of interest from income from house property @ 10 per cent.
From the above, you will appreciate that it is perhaps a fit case for making necessary modifications under section 24 providing for deduction of interest paid by the employee as well the interest which has been considered as perquisites in the hands of the employee for the purpose of computation of income from house property.
Minimum Alternate Tax
Under section 115JB, a minimum tax liability has been provided for the companies. The said tax liability is based on the profits computed in accordance with the provisions of the Schedule VI of the Companies Act subject to certain adjustments provided therein.
No adjustment has been provided in the said section for provisions / payments covered under 43B of the Income Tax Act. Let's now take a look at this situation:
In case a company provides for a liability for excise / sales tax in year one for which it is liable to pay tax under section 115 JB, the tax liability will be computed after allowance of the said provisions for excise / sales tax.
In the year two, when the said liability is paid, and if the company is not covered under section 115JB, the said company will again be entitled to deduction of the said liability in view of specific provisions of section 43B prescribing for the deduction being allowed in the year of payment.
Similarly in the other case if the company had provided for liability in year one and the deduction is not allowed to the company while computing income under section 28 in view of provision under section43B and in year two when the said liability is paid and the company falls under section 115JB in year two, the deduction for the said provision will not even be allowed in the second year.
This will mean the liability has been provided and paid by the company but the deduction for the same will be denied forever. Unfair, indeed.
In order to resolve the above, it is suggested that under section 115JB adjustment may also be allowed for disallowance/deductions to be made under section 43 B of the Income Tax Act.
Accounting method
Method of accounting under section 145A: Section 145A (b) provides that the value of purchase / sale and inventory for the purpose of valuation of inventory shall include the amount of tax, duty, etc. incurred by the assessee. As per the said provisions, Modvat credit availed of by an assessee on various inputs is required to be loaded to the purchase / sale / inventory of the goods.
These provisions are contrary to the Accounting Standards (AS-2) issued by the Institute of Chartered Accountants of India relating to valuation of inventory wherein it is provided that the valuation of inventory should be made at the price net of Modvat credit.
It is difficult for the assessees to maintain their books of accounts to comply with the company law provisions as well as provisions under section 145A of the Income tax Act.
Most companies have started making necessary adjustments outside the books of accounts to comply with the section 145A.
Interest on loans
As per the existing rules, various loans given by the employer to the employees at concessional rates are being treated as taxable perquisites.
Let's understand this problem emanating from the provisions relating to perquisites on housing loan / computer loan given to the employee at a concessional rate.
Computer loan
As per Rule 3 (7), loan for computer at concessional rate is treated as perquisites. It must be appreciated that as per Rules 3 (7)(vii), laptop, computer provided by the employer to the employee is not considered as the asset for personal use and the same is not considered as assets provided at the residence of the employee for computing perk value.
In case the computer / laptop are not considered as white goods provided to the employee, it must be understood that the concessional loans given to the employees for purchase of computers should also logically not be considered for computation as per Rule 3 (7) (viii) under the Income tax Rules.
Sops for population control
Given that population control issue has been relegated to the backburner by most political parties in the recent year and India has begun to see the marginal decline in the Hindu rate of growth as big achievement, it would be a great service to the posterity and the nation if Chidambaram comes out with some deduction scheme for all those who contain their family planning to a maximum of two children.
This would be an effective incentive for thousands of educated to go for this fiscal sops. Given that it would not cost the exchequer much in terms of revenue it would be worth trying it out.