V. K. Subramani
The Budget 2018 aroused great expectations among the taxpayers by way of relief from tax particularly in the context of Income-tax Act, 1961. While the tax collections have shown buoyancy, the Government did not take measures to boost it further. Instead, it has announced certain welfare measures such as medical assistance to huge population in one go without having a proper logistics for launching such a massive scheme. Having collected huge tax by way of income-tax and GST, it is prudent and justified to channelise the resources to benefit the lower strata of the society but such measure requires proper planning and seamless execution. Else, it would meet the same fiasco of demonetisation and hiccups in the initial stages of GST.
This write-up discusses significant amendments proposed in the Income-tax Act, 1961.
1. Increase in cess: There is no increase or decrease of tax liability for personal taxpayers as the basic exemption limit has been retained without any change. However, with increase in cess from 3% to 4%, there will be a little extra tax outgo on the taxpayers.
2. Corporate tax rate: The corporate tax rate has been reduced to 25% for companies having turnover up to Rs 250 crore. This reduction in tax rate in conjunction with taxation of long-term capital gains tax on sale of listed shares seems to be somewhat balanced. However, nonreduction of tax rate for partnership firms, AOPs and personal taxpayers (for whom the maximum tax rate of 30% is applicable) seems to be unjustified.
3. Deemed dividend: There is some controversy as regards taxation of deemed dividend. In the case of companies in which the public are not substantially interested, advancing money to shareholder having more than 10% stake in the company was taxable as deemed dividend in the hands of recipient shareholder. There are lots of controversies on interpreting section 2(22)(e). The Finance Bill, 2018 proposes to shift the burden of tax on the company by fixing the dividend distribution tax rate at 30%. Again the very definition of “deemed dividend” when plagued with so much of controversy, the litigation will now shift to corporate arena from shareholders.
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