Union Budget 2019: Expectations From Corporate Tax Rates, Individual Tax Rates And Litigation Matters

Prologue: As part of our series focusing on the Union Budget 2019, we’ll be highlighting the opinions of industry experts and see what they think and expect from this year’s Budget. In this article, Suman Sapra, a corporate tax and litigation expert talks about her Union Budget 2019 expectations. Read on!

Union Budget 2019 Expectations: Individual Tax Rates & Corporate Tax Rates

I believe the key focus of the Budget should be increasing the exemption limit from INR 2.5 Lakh to INR 3 Lakh. Secondly, the revision in the limit of Section 80C is something that can also be looked at, expectedly from INR 1.5 Lakh to INR 2 Lakh. What I personally feel strongly about is the revision in the corporate tax rate scenario, as there is a disparity in that aspect. Right now, domestic companies with turnover of up to INR 250 crore till FY16-17 are taxed at the corporate tax rate of 25% whereas partnerships and LLPs (Limited Liability Partnerships) incur a tax rate of 30%.

The revision of this tax rate and streamlining it across different company formats to a standard rate of 25% is something that can be looked at during the Union Budget 2019 presentation.

This is particularly pivotal because from an industry perspective, most small companies, start-ups and MSMEs are generally incorporated as partnerships and in order for them to grow in India, it is important to have a relatively lower as well as a standard tax rate.

Union Budget 2019: Expectations In Tax Litigations

Secondly, when it comes to tax litigation matters, I think there is a need to reform the provisions or amend some existing provisions of Income Tax Act to lessen the burden of litigations on unimportant issues.

Some of the provisions are either too ambiguous or silent on certain aspects. In this respect, one of the clarifications which should be made with respect to disallowance under section 14A of Income tax Act is that where there is no exempt income, no disallowance under this provision should be made.

The CBDT vide circular no. 5/2014 dated 11/02/2014 has stated that all expenses pertaining to an exempt income will be disallowed, notwithstanding the fact that no such income has been earned during the financial year.

However, various courts have denied such disallowance in absence of no exempt income. Even the Hon’ble Delhi High Court in case of PCIT vs IL&FS Energy Development Company, following the judgement of Cheminvest Ltd. has evidently shown its disagreement with the CBDT circular and held that where there is no exempt income in relevant year, there cannot be a disallowance of expenditure under Section 14A.

This year, however, multiple cases have been selected for limited scrutiny for the reason of “expenses incurred for earning exempt income” without even verifying whether there is an exempt income or not. Such type of disputes are never ending between the between taxpayer and the Income Tax department and it involves wastage of time and energy. Hence, it is expected that amendment should be made to section 14A to clarify that disallowance under section 14A shall not be made where there is no exempt income.

Personally, I feel the budget should focus on holistically easing out tax rates, improving compliance and litigation matters which ultimately help companies setting up easily and operating with ease in India, while also helping MSMEs emerge on to the Indian business scene.

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