Direct tax receipts will likely show a robust performance for the third year in a row post-pandemic, giving enough space to the Centre to keep the fiscal deficit within the targeted limit. This is despite additional spending expected on food, fertiliser and job guarantee programmes, and a lower than expected growth in nominal GDP as a fraction of which the deficit is usually expressed.

Official sources said the Centre’s gross direct tax collections (after refunds but before devolution to states) could exceed the budget estimate by over Rs 1 trillion in 2023-24.

Of late, there had been suggestions of imposing a one-time Covid-19 relief cess and/or a wealth tax on India's super rich population, as this segment is believed to have a higher obligation towards ensuring the larger public good. The government’s initial reaction was not supportive of this idea. However, one feels that eventually the possibility of the wealthier section of the society bearing a higher tax liability for a limited period of time cannot be ruled out against the current complicated macroeconomic backdrop.

Covid-19 has heavily impacted the government’s revenue streams apart from putting a major strain on its expenditure in order to support the economy. This is surely prompting the fiscal authorities to explore various conventional and unconventional measures to boost fiscal health, and the government’s ability to keep supporting the needy.

After two decades, the Centre’s direct tax collections will likely show an year-on-year decline in FY20, reflecting the enormity of the economic slump, which has lately been accentuated by Covid-19 outbreak. The big tax cuts for corporate India announced in September with retrospective validity from the start of the year, also dented collections.

According to official sources, going by the collections until last Friday, gross direct tax mop-up in the fiscal could be down 8% annually. The last time the Centre’s direct tax receipts contracted was in FY99, when these were down 3.5%, on year.

The sluggish receipts also imply a fall in direct tax buoyancy to a multi-year low of (-)1 in FY20, a sharp slide from a creditable 1.6 in FY18 (thanks to demonetisation) and 1.2 in FY19.

The shortfall in direct tax collection has narrowed to less than one per cent during the current fiscal, making the Income Tax Department hopeful of meeting the revised target.

Direct taxes include personal income tax (PIT) and corporate tax (CT). “As on date, the shortfall is around 0.7 per cent on a year-on-year basis,” a senior government official told BusinessLine. He added that the situation on the personal income tax front is better, but corporate tax still remains a concern. This is despite revenue foregone on account of new measures announced in September last year. The Budget in July last year set a gross income-tax collection target of Rs. 5.69 lakh crore, which was lowered to Rs. 5.59 lakh crore in the revised estimate, a figure that was retained in the Budget for 2020-21.

Similarly, the gross collection target for corporate tax was Rs. 7.66 lakh crore, which was revised to Rs. 6.10 lakh crore in February. The revised estimate of direct tax for 2019-20 reflects a growth of 2.9 per cent over the previous year. Corporate tax saw a decrease of over Rs. 1.55 lakh crore over the BE (Budget Estimate).

Now, the tax department is keeping its finger crossed for March 15, which is the last date for the payment of the fourth and final instalment of advance tax.

The Government has so far mopped up Rs 6 lakh crore or less than 50 per cent of the total tax collection target of Rs 13.35 lakh crore for the current fiscal, a senior official said. Efforts are being made to achieve the target set in the Budget, Central Board of Direct Taxes Chairman P C Mody said after inauguration of the Taxpayers Lounge at Pragati Maidan here. “During the beginning of the year, we were given the tax collection (target) of Rs 13.35 lakh crore. Of this, we have already collected Rs 6 lakh crore so far,” he said. Refunds due to the tax payers are done swiftly, he said, adding the refunds have gone up 20 per cent compared to the last fiscal. “Efforts are made towards tax collection and I have full confidence that we will reach the target set in the Budget,” Mody said. He also said the tax payer services is one of the focus area of CBDT. Keeping this in mind, a member has been appointed for tax payer services.

Multinational technology and digital companies may have to cough up a minimum level of corporate tax, bringing an end to the popular practice of lowering or avoiding taxes by setting up entities in low-tax jurisdictions. The Organisation for Economic Cooperation and Development (OECD) on Friday unveiled for public consultation a proposal on taxation of digital companies. It seeks to use financial accounts as a starting point for determining the tax base and provide guidance on the extent to which an MNC can combine income and taxes from different sources in determining the effective tax rate on such income.

With exports and investments on the slide, the Centre is considering a five-year extension of tax benefits for units in Special Economic Zones (SEZs) by extending the sunset clause beyond March 31, 2020 to boost investor sentiment. “There is a feeling in the Commerce Ministry that an extension of SEZ tax benefits could be critical in kick-starting the investment cycle. A five-year possible extension is being discussed with stakeholders, including the industry and government,” a government official told BusinessLine.
Removing Minimum Alternate Tax (MAT) on the export turnover of SEZs is also being considered, the official added. According to the sunset clause, the 100 per cent income tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for the first five years, 50 per cent for next five years and 50 per cent of the ploughed back export profit for subsequent five years, will expire on March 31, 2020.

New contract manufacturing outfits can avail of the 15% corporate tax scheme but companies that opt for the 22% tax regime won’t be eligible for accumulated minimum alternate tax (MAT) credit, a senior government official said. The finance ministry will clearly specify what constitutes reorganisation or reconstruction of an entity and new manufacturing eligible for the 15% rate as part of detailed clarifications on the new corporate tax framework to clear the air on a number of issues that have been raised by industry. Companies that opt for the reduced corporate tax rate of 22% cannot claim any exemption or incentives, including accumulated MAT credit. “Contract manufacturing will be eligible,” the official said. “Natural meaning of manufacturing that has emerged out of several Supreme Court judgments will apply.”

The CBDT on Thursday extended the deadline up to December 31 for the Income-tax department to complete the final assessment of about 87,000 entities that made suspicious deposits post-demonetisation. The existing deadline of September 30 is being "extended" by three months after considering "various difficulties" being reported by the field offices of the department in finalising assessments in OCM (operation clean money) cases, a senior official told PTI. An order was issued by the Central Board of Direct Taxes (CBDT) on Thursday, setting the new deadline on December 31, the official said. The CBDT frames a policy for the I-T department. This is the second extension given by the Board in this case after the first deadline of June 30 was extended up to September, the official said.

The recent changes in the corporate tax structure abolished the requirement of minimum alternative tax (MAT) for firms that opt for the new low-rates regime but have left it ambiguous if they could utilise accumulated MAT credit in the new regime. Tax experts say if the credits are not made available to the firms, companies that carry MAT credit as assets will have to write these off and take a big hit on profits, negating the purpose of boosting the cash flows of firms and prompting them to invest.

Corporate tax rate cut decoded! Why FM Sitharaman’s announcement is a Diwali bonanza for economy .A clarification is being eagerly awaited by firms and chartered accountants.
A finance ministry official acknowledged the confusion but said as the Ordinance issued on Friday is silent on use of MAT credit for those migrating to the new regime, it meant that accumulated credits can’t be utilised. Of course, if a firm chooses to remain with the old tax structure, the credits will be available to it.

The corporate tax rate has hovered between 25% and 29% since FY14 at the aggregate level for a sample of 167 companies from the BSE 200 index that have domestic promoters. In FY19, the sample companies reported ?1.9 lakh crore of tax outgo on profit of Rs. 6.6 lakh crore before taxes (PBT). This implies a tax rate of 29.1%.

The Direct Tax Code draft proposed by a government panel earlier this month may have sought to substantially lessen the tax burden on individuals and corporates, but it won’t alter the current tax regime for participation in and gains from the stock markets. According to official sources, extant taxes on the short-term and long-term capital gains from sale of assorted assets, including the contentious LTCG tax introduced for listed equities in the Finance Act 2018, will not only remain but will be levied at the same rates as now, post-adoption of DTC. So will be the case of securities transaction tax (STT).

In what could come in as a big relief for capital market players, the task force on direct tax code has recommended abolishing the dividend distribution tax while retaining the longterm capital gains tax and securities transaction tax, a source in the know of the matter said.
The panel, which submitted its report to financeNSE -2.28 % minister Nirmala Sitharaman last week, has also suggested reworking the personal income tax structure with lower rates in a bid to make India a more tax-c more tax-compliant country. “The idea behind removal of DDT is to remove the cascading impact of taxation and the panel favours no preferential treatment for any class of investor,” said the source.

State owned re-insurer General Insurance Corporation of India, along with general insurers, have approached the Finance Ministry for relaxation of recent tax provisions that have impacted their profits due to a larger tax payout.

The Central Board of Direct Taxes (CBDT) has proposed amendments to the tax audit report for charitable trusts and institutions, which would require additional details from assessees in the form of status of registration under the Income Tax Act, compliance to conditions for application and registration status under the Foreign Contribution Regulation Act (FCRA), 2010, among others. The draft notification has been put in the public domain and stakeholders have time till June 5 to submit their views. The proposed changes will extend the audit form to 8 pages from 3 pages earlier.

With the commerce and industry ministry taking steps to support budding entrepreneurs, as many as 342 startups have received intimation regarding exemption from angel tax since February, an official said. Giving a major relief to budding entrepreneurs, the government in February relaxed the definition of startups and allowed them to avail full angel tax concession on investments of up to Rs 25 crore.

With a view to give a further boost to the startup ecosystem in the country, DPIIT is considering exempting investors from capital gains tax when they exit a startup. Once the new government takes over by the end of next month, the Department for Promotion of Industry and Internal Trade (DPIIT) is expected to moot the idea then.

The rules for attributing profits to multinational enterprises having a permanent establishment (PE) or business connection in India are set to significantly change if the draft report issued on Thursday night by a committee — appointed by the Central Board of Direct Taxes (CBDT) — is adopted. According to tax experts, MNCs carrying offshore operations in India, which also have sales revenue from the country, may find that higher profits that are attributed to Indian operations — under the prescribed formula-driven approach — will result in a higher tax outgo.

Mumbai has once again emerged as the top contributor to the exchequer and accounted for 32 per cent of the overall tax collection in the financial year ended March. Shrugging aside concern over slower economic growth, the cumulative tax remittance under various heads, including corporate tax, income tax, fringe benefit tax and securities transaction tax, was up 17 per cent in FY19 at Rs.10.95 lakh crore against Rs.9.36 lakh crore logged in FY18. But this is lower than the targeted amount.

The Department for Promotion of Industry and Internal Trade (DPIIT) is working on a definition of 'accredited investors', who could be provided tax incentives for investments in startups, an official said. The department, under the commerce and industry ministry, has already prepared a draft definition and is now seeking views of stakeholders. The official said these accredited investors, which can include trusts, individuals, family member of a startup and unlisted companies, may get exemption from angel tax under Section 56(2)(viib) of Income Tax Act, 1961, beyond the Rs 25 crore limit.