Govt decriminalises late payment of TDS, to reduce litigation with Vivad se Vishwas scheme

The Budget also proposed legislative changes to provide for immunity to benamidar or any person other than the beneficial owner who turns approver against the beneficial owner under the Benami Transactions (Prohibition) Act, 1988.

“A beginning is being made in the Finance Bill by simplifying the tax regime for charities, TDS rate structure, provisions for reassessment and search provisions and capital gains taxation. The two tax exemption regimes for charities are proposed to be merged into one,” said Finance Minister Nirmala Sitharaman.

At present, the Income Tax Act has two main regimes for trusts or funds or institutions to claim exemption. Now, it is proposed to merge trusts under the first regime with the second regime for exemption and also provide for rationalisation of filing of applications and the timelines for registration and approval of certain benefits to charitable trusts and institutions. “In order to take forward the process of simplification of procedures and to reduce administrative burden, it is proposed that the first regime be sunset and trusts, funds or institutions be transited to the second regime in a gradual manner,” the Budget document stated.

The Budget also proposed to decriminalise several provisions under the Income Tax Act. Indian professionals working in multinationals get ESOPs (employee stock ownership plans) and invest in social security schemes and other movable assets abroad and non-reporting of such small foreign assets has penal consequences under the Black Money Act. Now, such non-reporting of movable assets up to Rs 20 lakh has been proposed to be de-penalised.

The Budget has also proposed to decriminalise late payment of TDS, if the payment is made before the time prescribed for filing the TDS statement. Time limits for reassessment are proposed to be reduced from ten years to five years along with rationalisation of the procedure for reassessment. “An assessment hereinafter can be reopened beyond three years from the end of the assessment year only if the escaped income is Rs 50 lakh or more, up to a maximum period of five years from the end of the assessment year. Even in search cases, a time limit of six years before the year of search, as against the existing time limit of ten years, is proposed. This will reduce tax uncertainty and disputes,” Sitharaman said.

The 5 per cent TDS rate has been proposed to be 2 per cent on several transactions including payment of insurance commission, payment in respect of life insurance policy, commission on sale of lottery tickets, payment of commission or brokerage, payment of rent by certain individuals or HUF. These changes will be effective from October 1.

The 20 per cent TDS rate on repurchase of units by mutual funds or UTI was withdrawn, while the TDS rate on e-commerce operators has been proposed to be reduced from 1 per cent to 0.1 per cent.

The Budget has also proposed to increase the monetary limits for filing appeals related to direct taxes, excise and service tax in tax tribunals, high courts and the Supreme Court to Rs 60 lakh, Rs 2 crore and Rs 5 crore, respectively. The current limit involves tax demand of Rs 50 lakh, Rs 1 crore and Rs 2 crore, respectively. The government also plans to bring in a new version of the dispute resolution scheme, Vivad se Vishwas 2.0, to provide a mechanism of settlement of direct tax disputes with an aim to reduce litigation.