The Institute of Chartered Accountants of India (ICAI) has submitted this Pre-Budget Memorandum – 2025 on Direct Taxes and International Taxation to the Government.
The Pre-Budget Memorandum – 2025 contains suggestions for the consideration of the Government while formulating the tax proposals for the year 2025-26.
The Memorandum contains suggestions on the policy and provisions of Income-tax Act, 1961. The suggestions have been presented Chapter-wise highlighting the relevant provision of law, the issue/concern and the suggestion. The suggestions include suggestions for rationalization of the provisions of direct tax laws, for reducing/minimizing litigation, for reducing compliance burden and for improving tax collection.
Direct Tax
Section 276B – Prosecution provisions not to be attracted if tax deducted is deposited at any time before the time prescribed for filing the quarterly statement of TDS – Relief to be extended where tax is deposited before the service of notice
The provisions of section 276B are intended to discourage tax deductors from retaining the legitimate government dues unjustly. However, at ground level implementation, notices are being issued for initiation of prosecution proceedings under section 276B even in cases where tax deductors have deposited the tax deducted by them voluntarily after the stipulated time but before any notice has been served upon them.
The initiation of prosecution proceedings in cases of voluntary deposit of TDS after the stipulated time but before service of notice is causing undue hardship to genuine tax deductors. Voluntary remittance of TDS before issue of notice clearly indicates the absence of any mala fide intention on the part of the tax deductors to retain the taxes due to the government. The tax deductors are, in any case, being subject to higher interest@1.5% per month or part of a month under section 201(1A) for the period of delay in remittance.
The TDS statements submitted by them also clearly reflect the taxes deducted, the date of deduction and the date of remittance along with interest, which indicates the bona fide intent on the part of the deductors to report the correct details to the Department. However, it appears that the notices for prosecution are issued on the basis of these information provided by the tax deductors in their TDS statements. It is a settled law that prosecution proceedings are appropriate only in cases where deductors deliberately do not deposit the TDS, since mens rea or a guilty mind is a sine qua non for attracting prosecution provisions.
The proviso to section 276B gives relief from prosecution provisions if tax has been paid to the credit of the Central Government at any time on or before the time prescribed for filing quarterly statement under section 200(3).
It is suggested that the relief from prosecution provisions under section 276B be extended to deductors who have paid tax to the credit of the Central Government after the prescribed time limit but voluntarily at time before service of any notice.
The ICAI suggested that The proviso to section 276B may be modified to read as under “Provided that the provisions of this section shall not apply if the payment referred to in clause (a) has been made to the credit of the Central Government at any time on or before the service of notice”.
Section 271FA – Penalty for failure to furnish statement of financial transaction or reportable account – Clarity regarding the authority to whom an appeal shall lie in case of penalty order passed by DIT
Due to certain conflicting judicial decisions, an issue has arisen regarding the authority to whom an appeal shall lie in case of penalty order passed under section 271FA by DIT.
Section 246A(1)(q) provides that any assessee or any deductor or any collector aggrieved by an order imposing a penalty under Chapter XXI may appeal to the Commissioner (Appeals).
However, there are some Tribunal rulings that appeal against an order of Director of Income-tax passed under section 271FA is to be filed before Tribunal who is higher in rank and not before Commissioner (Appeals) who is equivalent in rank with Director of Income-tax.
In order to reduce litigation with regard to this provision, clarification is sought on the aforesaid issue.
ICAI suggested that an amendment be made in relevant sections (section 246A or section 253) to clearly specify the authority to whom an appeal may lie against an order passed by DIT under section 271FA.
International Taxation
Issue Related To TCS on International Credit Card Payments
Resident individuals often use their credit cards to pay foreign entities for goods purchased / services availed in foreign currency. Whenever a credit card transaction is made in a foreign currency, a fee is charged from customers to process such a transaction.
Currently, the authorised persons referred to in section 2(c) of the FEMA Act, 1999 are required to report in the statement of financial transaction, if the expenditure in foreign currency of any person, by way of inter alia, credit card or debit card is Rs.10 lakh or more in aggregate in a financial year. Also, banks are required to report in the SFT, credit card payments of Rs.1 lakh or more in cash or Rs.10 lakh or more by any other mode by a person in a financial year.
In order to further strengthen the mechanism to capture foreign currency transactions through credit card, TCS provisions may be introduced.
The ICAI has suggested that tax be collected on foreign currency transactions through credit cards, so that all such transactions can be captured.
Section 97(1) read with Rule 10U – Threshold tax benefit of Rs.3 crore for applicability of GAAR provisions – Need for increase in threshold and clarification of meaning of tax benefit
The ICAI has suggested that Sub-clauses (e) and (f) may be appropriately worded to correspond with the ‘tax’ amount. In other words, the reference to income/loss should not be the base for defining the term ‘tax benefit’.
Further, for the sake of clarity, it may be specified that tax benefit for the purposes of the threshold shall include only income tax and shall not include other amounts like interest, etc.
The threshold limit for attracting GAAR provisions was increased from Rs. 3 crore to Rs. 10 crore in Rule 10U – Chapter X-A not to apply in certain cases. This will ensure that the efforts are directed on the high value transactions.
