Budget 2024 Expectations: The Confederation of Indian Industry (CII) has unveiled its set of recommendations for Budget 2024, focusing on simplifying personal taxation. The proposals include suggestions regarding capital gains tax and deadlines for filing tax returns, among other key aspects.
Here are some of the recommendations made by CII;
Extended deadline for filing revised returns: CII suggests extending the deadline for filing revised returns to the conclusion of the assessment year, aligning it with the extended deadline for submitting Form 67. The purpose of this adjustment is to facilitate taxpayers in claiming or modifying foreign tax credits.
Form 67 serves as a declaration of income earned in a foreign country and statement of foreign tax credit. Taxpayers who have paid tax in foreign jurisdiction can avail credit in India by submitting this form. Notably, in August 2022, the tax department had extended the deadline to submit Form 67 with retrospective effect from April 1, 2022.
The last date for filing returns in the assessment year is 31st July. Late returns can be filed up to December 31, three months before the end of the assessment year, but penalties are applicable. It is important to understand that filing of voluntary returns is not allowed after 31st December of the assessment year. If the Income Tax Department selects your return for scrutiny later, they will inform you about the necessary action. The return can be revised up to three months before the end of the assessment year.
Share buyback taxation: Currently, under the open market route, the company charges a buyback tax of 20 per cent on the shares purchased, while at the same time, the shareholder is liable to pay capital gains tax on the shares sold.
In share buyback a company repurchases its shares from shareholders at a premium. This can be implemented through tender offer or open market offer.
According to the CII report, for listed shares undergoing buyback through the open market route, it has been recommended to exempt companies from buyback tax. After this, shareholders will still be obliged to pay capital gains tax.
Rationalization of Capital Gains Taxation: There has been a demand to simplify the existing complex taxation system for a long time. Two primary issues contribute to this complexity: different tax rates across different asset classes and the holding period (the cutoff period separating long-term gains from short-term ones). Additionally, some assets benefit from indexation while others do not, further contributing to the complexities of the existing system.
CII proposal
CII has proposed a tax rate of 15 per cent for short-term capital gains and 10 per cent for long-term capital gains arising from sale of financial assets including equity shares, preference shares, equity mutual funds, debt mutual funds, REITs, etc. , InvITs, Bonds, etc. Additionally, it recommends setting a minimum holding period of 12 months to qualify for long-term capital gains.
With respect to non-financial assets like real estate, CII suggests taxing short-term capital gains at the applicable slab rate and setting long-term capital gains tax at 20 per cent, including indexation benefits. The cutoff of holding period proposed to differentiate short and long term gains is 36 months. Practically, if such an asset is sold after holding it for 36 months or more, any capital gains must be treated as long-term.
Long-term capital gains tax and indexation benefits for debt funds were removed in 2023. The CII recommendation, in fact, is to roll back the capital gains tax benefits and bring them at par with equity funds.
Perk Tax in respect of Electric Cars: Perk refers to any additional benefit, whether monetary or non-monetary, that an employee receives from an employer along with their salary. In the case of a motor car provided by the employer, the taxation of this allowance is dependent on specific factors, particularly whether the cubic capacity (cc) of the engine falls within the limit of 1,600 cc or more.
Since this criterion does not apply to electric vehicles (EVs), an alternative metric must be introduced to determine perquisite taxation.
CII has proposed to amend the Income Tax Rules to clearly define the criteria for perquisite taxation on electric vehicles provided by employers to their employees.
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