ICAI submitted the pre-budget memorandum to the Indian government. The suggestions from ICAI for direct and international taxation are in the memorandum. The improvisation is visible in the tax collection, litigations, rationalising the tax laws, tax evasion, and administrative procedures for direct tax by incorporating the suggestions mentioned by ICAI. The pre-budget memorandum educates about new terminologies. The new terminologies definition mentioned in the memorandum are as follows: amalgamation, demerger, LIP as a capital asset, the resulting company, immovable properties, total income, income from other sources, carry forward of losses, deductions with income, deductions with payments, provisions for the avoidance of tax, tax for special cases, domestic companies, deduction at source, advance payment of tax, tax penalties, and suggestion for international tax laws. The blog engages the readers with an overview of the recommendations from ICAI.
Amalgamation:
The amalgamation process has two dates. One is the appointed date, and the other is the effective date. The date of the merger is the appointed date. In the merger, the effective date is the date on which the process was over. It denotes that the asset and liabilities are transferred. On the effective date, the transfer of shares from the amalgamated company to the amalgamating company happens. It is the suggestion from ICAI for a smooth process.
Demerger:
In case of demerger, the holding company issue shares to the subsidiary company. The income from the dividend is not income. It is exempted from the tax. The liabilities of the undertaking company and the resulting company gets transferred during the demerger. There is a lack of clarity in the calculation of gross assets or net assets. The suggestion from ICAI brings clarity.
LIP as a capital asset:
The premium amount received under the life insurance policy comes under direct tax laws. The premium received is sometimes more than the percentage of 10 or 20 of the assured amount. This receipt is taxable. Income tax is income-based. Capital asset tax is an ownership-based one. As a part of income tax, the insurance premium is taxed. The suggestion from ICAI states that the premium amount includes inflation. If the amount is taxed, it is overrated. So, Insurance premiums are a capital asset. This amendment reduces the litigation under section 2(14).
Immovable property:
Immovable property holding comes under capital asset. ICAI want to bring change in the holding period for land and building. It has to be reduced to two years from three years. Reduction in the tax on immovable property impacts the real estate sector. If there is a reduction in the tax and cost, it promotes the value.
Sections 2(4A), 54, 54B, 54F and 54D explain the long-term capital asset.
Resulting company:
The resulting company issues shares. During demerger, the holding and subsidiary companies are the resulting company. It improves the rationalization of direct tax laws.
Total income:
The total income includes the PF amount. At the time of withdrawal, the interest on PF is treated. Taxable income depends upon the receipt, deemed receipt, or deemed accrual.
Income from other sources:
ICAI had recommended certain sections to the income from other sources. The changes recommended going as 24 months for the payer, issues of shares, interest on dividends, transfer of income without asset transfer, and cash credits of loans taken from specified entities. The source of loan or credit has to be satisfactory. The assessing officer should approve the credit explanation and say that source of the loan is satisfactory. The question from Indian tax laws cast over the non-residents also. The changes bring rationalisation in the Indian tax laws.
Carry forward of losses:
ICAI suggest the government make changes to carry forward losses. Currently, the business owners can set off the losses for eight years. The suggestion is to make the business loss indefinite for insurance companies. For real estate, ICAI suggests raising the limit from two lakhs to five lakhs. The consolidation of the media with telecommunication services is the other suggestion of ICAI. This change will help the growth. ICAI also has a suggestion for direct and indirect holding.
Avoidance of tax:
Transfer price has an impact on profits. Appropriate amendments are made to manage the differences. Advance pricing agreements do not apply to domestic transactions. This way of calculation is about to change. Domestic transactions are also enabled with advanced pricing agreements. Documentation of transfer pricing for domestic transactions is a difficult one. So, ICAI suggests keeping a threshold of 5 crores for document verification for transfer pricing.
The patent tax regime is available for outsourced IP development. A person who acquires the first patent is the first inventor. The patent tax regime is levied as per the threshold limit. This separation is to benefit the first investor and the commercial part of the business.
Foreign investors:
Foreign investors face losses due to currency fluctuations. To protect such investors from tax some suggestions are offered by the ICAI.
Deposits exceeding one crore:
The provision for the amount exceeding has changed. The bank account holder needs to mention all types of accounts with specified authorities. If cooperative societies and post offices are also covered, it helps to cover the specified transactions.
Final words:
The memorandum is a set of amendments to the tax laws. These amendments help the tax laws for the year 2023-24. In a short period, the institute will submit suggestions for GST and indirect tax. ICAI framed these changes after collecting suggestions from stakeholders. On September 23, ICAI mentioned the views of stakeholders for the 2023 budget. The opinions of the professionals spotlight the ups and downs of the system. Every year, the Indian government consider the views of ICAI.
