Income Tax Measures Under Economic Stimulus Packages

Advocate Shashi Bekal has systematically summarized the three major Covid-19 reforms ushered in by the Government by way of extension of due dates, reduction in rates and disbursement of tax refunds. He has explained the scope of these reforms and provided a link to the relevant notification, press releases etc. He has pointed out that there are some proposals which have so far not received legislative sanction, which is causing confusion amongst taxpayers and tax professionals. He has requested the Government to address these issues as soon as possible

The Central Board of Direct Taxes (CBDT) vide Notification dated June 24, 2020 and the Ministry of Finance vide Press Release dated June 24, 2020 has provided a much needed clarity and has given a legislative sanction to the income tax reforms inter alia proposed by the Hon’ble Finance Minister in light of the pandemic COVID 19.

On May 13, 2020, the Hon’ble Finance Minister addressed the Nation in relation to the details of the ₹ 20 Trillion (20 Lakh Crore) economic package, as announced by our Hon’ble Prime Minister a day before, to battle the economic slowdown as a result of the lockdown to prevent the spread of corona virus. The proposed sum is equivalent to 10 per cent of our Nation’s GDP and this bold reform is expected to push our country towards being Atmanirbhar.

The Organisation for Economic Co-operation and Development (‘OECD’) on March 16, 2020 outlined a range of emergency tax measures that governments could adopt to curb an economic fallout, inter alia was to extend deadlines, suspend the recovery of taxes and enhancement of services & communication, quicker refunds to tax payers.

Although, most of the measures were adopted by the Finance Ministry vide Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated March 31, 2020 (Ordinance). The Finance Ministry has stepped up with further reliefs to support the economy. The economic package is for benefitting a wide array of sectors including MSMEs, Discoms, Real estate, Tax payers, Middle Class etc. The proposed tax reliefs can be categorized in three major categories viz. extension of due dates, reduction in withholding rates, and disbursement of tax refunds.

However, since the speech made by the Hon’ble Finance Minister on May 13, 2020, there has been no legal sanction to those proposals resulting into confusion amongst tax payers and tax practitioners; until the Central Board of Direct Taxes (CBDT) Notification dated June 24, 2020 bearing Notification No.35 /2020/ F. No. 370142/23/2020-TPL, titled “Taxation and Other laws”. Subsequently, there has been a press release by the Ministry of Finance dated June 24, 2020. The Notification & Press release contains further reforms, other than what has been mentioned in the speech dated Ordinance dated March 31, 2020, Press Release dated May 8, 2020, and Press Release dated May 13, 2020.

The salient features of the proposed reforms under the Income -tax Act, 1961 (Act) inter alia are as under:

I. Extension of due dates

Income tax Return under Section 139 of the Act & Audit Report:

Due dates for filing of Income tax returns under section 139 of the Act for Financial year (FY) 2018-19 i.e. Assessment year (AY) 2019-20 will be extended to July 31, 2020.

For FY 2019-20 i.e. AY 2020-21, the due dates return of filing of Income tax return for all tax payers have been extended to November 30, 2020. Consequently, the date for furnishing tax audit report has also been extended to 31st October, 2020.

However, it is clarified that there will be no extension of date for the payment of self-assessment tax for the taxpayers having self-assessment tax liability exceeding Rs. 1 lakh. In this case, the whole of the self-assessment tax shall be payable by the due dates specified in the Act and delayed payment would attract interest under section 234A of the Act.   

The extension date will prove favourable to tax payers as normalcy can be expected to be restored by then. Further, this also postpones the payment of taxes by few months thereby improving the liquidity position of the tax payers.

Deduction under Ssection 54 to 54GB of the Act:

Section 54 to 54GB pertains to deduction on Capital Gains arising from Long-term Capital Gains or Short-term Capital Gains, as the case may be. According to these provisions if the tax payer reinvest the gains arising on account of transfer of a capital asset into another specified capital asset; the tax payer is allowed a deduction as per the respective section. However, there is a time limit within which such reinvestments ought to be made.

The date for making investment/construction/purchase for claiming roll over benefit/deduction in respect of capital gains under sections 54 to 54GB of the IT Act had been extended to June 30, 2020 vide the Ordinance dated March 31, 2020. The same has now been extended to September 30, 2020. Therefore, the investment/ construction/ purchase made up to September 30, 2020 shall be eligible for claiming deduction from capital gains arising during FY 2019-20.

Deduction under Chapter VIA – B of the Act:

Chapter VI A Part B pertains to Deductions in respect of certain payments, which are made available to an eligible tax payer on making such payments e.g. Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, or Deduction in respect of deposits under National Savings Scheme or Deduction in respect of medical treatment etcetera.

The date for making various investment/payment for claiming deduction under Chapter-VIA-B of IT Act which includes Section 80C of the Act (LIC, PPF, NSC etc.), 80D of the Act (Mediclaim), 80G of the Act (Donations), etc. which was extended to June 30, 2020 has been further extended to July 31, 2020. Hence the investment/payment can be made up to July 31, 2020 for claiming the deduction under these sections for FY 2019-20.

Necessary legislative amendments in this regard shall be moved in due course of time.

Deduction under section 10AA of the Act:

Section 10AA of the Act pertains to income tax benefit or deduction for Special Economic Zone or SEZs undertakings formed to promote exports and foreign investments in India. 

The date for commencement of operation for the SEZ units for claiming deduction under section 10AA of the Act has also been further extended to September 30, 2020, for the units which received necessary approval by March 31, 2020.

Necessary legislative amendments in this regard shall be moved in due course of time.

Furnishing of TDS/ TCS statement under section 200 or 203 or 206C of the Act:

The furnishing of the TDS/ TCS statements and issuance of TDS/ TCS certificates being the prerequisite for enabling the taxpayers to prepare their return of income for FY 2019-20, the date for furnishing of TDS/ TCS statements and issuance of TDS/ TCS certificates pertaining to the FY 2019-20 has been extended to July 31, 2020 and August 15, 2020 respectively.

Passing of Orders:

December 31 is the due date for issuing orders under Direct taxes & Benami law. Also, vide prior Press Releases, due dates for passing orders have been extended to December 31, 2020

Now, the date for passing of order or issuance of notice by the authorities and various compliances under various Direct Taxes & Benami Law which are required to be passed/ issued/ made by December 31, 2020 has been extended to March 31, 2021.

This is beneficial for the taxman and taxpayer as this will ensure smooth administration of taxes.

Linking of Adhaar with PAN:

The last date for linking of Adhaar with PAN has also been extended to March 31, 2021.

Vivad Se Vishwas Scheme: 

The last date for making beneficial payment under the Direct tax Vivad Se Vishwas Act, 2020 was initially extended to June 30, 2020 vide the Ordinance dated March 24, 2020. It is now further extended to December 31, 2020.

Vide Press Release dated June 24, 2020 it has expressed that the said Notification has extended the date for the completion or compliance of the actions which are required to be completed under the Scheme by December 30, 2020 to December 31, 2020. Therefore, the date of furnishing of declaration, passing of order etc under the Scheme stand extended to December 31, 2020.

II. Reduction in Rates

Withholding Rates:

In order to provide more funds at the disposal of the tax payer, the rates of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) have been proposed to be reduced by 25 per cent.

However, the reduced TDS rate is not applicable to payment of salaries and payment to non-residents. This reduced rate shall remain in force for the FY 2020-21. It is estimated that this measure will release a liquidity of Rs. 50,000 Crores.

For the ease of tax payers and better clarity, the CBDT vide press release dated May 13, 2020 have provided a table containing revised rates of TDS/TCS. Necessary legislative amendments in this regard shall be moved in due course of time.

Interest Rates:

Vide Ordinance dated March 31, 2020 it was provided that reduced rate of interest of 9% shall be charged for non-payment of Income-tax (e.g. advance tax, TDS, TCS) Equalization Levy, Securities Transaction Tax (STT), Commodities Transaction Tax (CTT) which are due for payment from March 20, 2020 to June 29, 2020 if they are paid by June 30, 2020. Further, no penalty/ prosecution shall be initiated for these non-payments.

It has been clarified by the Press Release dated June 24, 2020 that the reduced rate of interest of 9 per cent for delayed payments of taxes, levies etc. specified in the Ordinance shall not be applicable for the payments made after June 30, 2020.

III. Disbursement of tax refunds

It was proposed vide the Ministry of Finance Press Release dated May 13, 2020 to disburse all pending refunds to charitable trusts, non-corporate businesses and professionals. This will improve liquidity in the hands of the tax payers.

Analysis

The policy of the administration with respect to tax reforms on account of pandemic is commendable. In essence all the three reforms aim at either lagging payments, reduce payments to the government exchequer, and the government is further trying to refund tax payer money to improve the liquidity in the economy. The delay in statutory compliances will also give some breathing space to the tax payers. Similarly, such amendments have been carried out by CBIC with respect to the due dates under GST.

However, there are still certain proposals made during the announcements viz Deferment of the implementation of new procedure for approval/ registration/ notification of certain entities under section 10(23C), 12AA, 35 and 80G of the Act, inter alia, which have not received legislative sanction. The absence of such legislative sanction creates a lot of confusion amongst tax payers and tax professionals. It is hoped that the same are addressed as soon as possible.

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