Justice RV Easwar Committee Recommendations

In October 2015, the union government has constituted a 10-member committee under the chairmanship of Justice RV Easwar, former judge of the Delhi High Court, to study the Income Tax Act, 1961 to identify the provisions that have given rise to litigation due to interpretative differences; to study the provisions that impact the ease of doing business; to identify the provisions for simplification in light of the existing jurisprudence; and to suggest modifications to ensure certainty and predictability in tax laws without substantially impacting the tax base or revenue collections. Presently, an estimated Rs.5 trillion is locked up in litigation across various courts and tribunals.

On 18^th January, 2016, the committee submitted first phase of its report to the Union Finance Ministry.

Summary of the recommendations

Tax deduction at source (TDS)

The committee observed that around 65% of the personal income-tax collection in India was through TDS.  The TDSs provision should be made more tax-friendly. Around 80% of individuals and Hindu Undivided Families (HUFs) who face tax deduction at source fell under the tax bracket of 5% whereas the TDS rate was 10%.  This resulted in harassment of taxpayers. The committee has called for enhancement and rationalisation of the threshold limits and reduction of the rates of TDS. TDS rates for individuals and HUFS to be reduced to 5% from the existing 10%.

Presently, TDS is applicable if payment of interest on securities and on interest on NSS accounts reaches Rs.2,500 or payment of interest on private deposits and commission or brokerage reaches Rs.5,000 or payment of bank interest is Rs 10,000 and above. The committee proposed raising the thresholds for TDS to Rs 15,000 from Rs 2,500 in case of interest on securities, to Rs 15,000 from Rs 10,000 for bank deposits, and Rs 5,000 for others.

The committee recommended for raising TDS limit for payments to contractors from the existing limits of 30,000 for single transaction (with annual limit of Rs. 75,000) to Rs 1 lakh annual limit.

It proposed thatnon-residents who do not have a Permanent Account Number (PAN), but who furnish their Tax Identification Number (TIN) should be given an exemption from the applicability of TDS at a higher rate.

Deferment of ICDS

The committee proposed for deferring the contentious Income Computation and Disclosure Standards (ICDS) provisions. The committee notes that taxpayers are already burdened with regulatory changes in Companies Act, 2013, Ind-AS (Indian accounting standards) and the proposed GST (goods and services tax). Industry should be given more time to deal with another change. Taxpayers are feeling that the provisions of ICDS may face a legal battle as there is no clarity on the provisions.

Income Computation and Disclosure Standards (ICDS)

With effective from April 1, 2015, all taxpayers following the mercantile system of accounting in India are expected to follow the 10 ICDS guidelines notified by the government on March 31, 2015. The objective behind its introduction is to bring consistency in computation of income and reduce potential litigation.

Changes to presumptive income scheme

Under presumptive income scheme, small businessmen can declare their income at 8 per cent of the total turnover or gross receipts of the previous year. As the scheme is popular, the committee recommended for increasing the eligibility limit under the scheme from the current Rs.1 crore to Rs.2 crore.

The committee proposed for doing away with keeping detailed books of accounts and getting them audited, as this will reduce the compliance costs and the pain of doing business for small businessmen.

The committee also recommended for introduction of a similar scheme for professionals. In India, a large number of self-employed professionals such as doctors, lawyers and chartered accountants do not file taxes and they show large expenses to avoid paying tax. To get them into the tax net is critical.

Other recommendations

• To remove the confusion over treatment of income from stock trading, the committee proposed that gains up to 5 lakh will be treated as capital gains and not business income when the shares are held for one year or less. If they are held for a period more than one year, the gains to be taxed as long-term capital gains. The move could encourage more retail investment in the stock market.
• The income-tax department should do away with the practice of adjusting tax demand of a taxpayer when his/her tax return is under assessment against legitimate refunds due.
• Tax officials should not reopen or reassess the cases based on audit objections.
• To minimize the human interface, the committee suggested for making the processes such as filing of tax returns, rectification of mistakes, appeal, refunds should be done electronically.
• It recommended for deletion of provisions allowing tax department to delay the refund due beyond six months and called for a higher interest levy for delays in refund.
• With respect to Sec 14A disallowance, it has proposed that dividend received after suffering dividend-distribution tax and share income from firm suffering tax in the firm’s hands will not be treated as exempt income and no expenditure will be disallowed as relatable to them.

Some of the committee’s recommendations require amendments to the income-tax act while some other require changes in administrative procedure that can be implemented through official notifications by the income tax department.