The government on Tuesday proposed several changes in the withholding tax structure, including reducing the tax rate for e-commerce businesses to 0.1% from the current 1% and allowing TCS deduction against withholding tax deducted from salary.
“The Finance Bill will initiate simplification of tax on charities, withholding tax rate structure, revaluation provisions, audit provisions and capital gains tax,” Finance Minister Nirmala Sitharaman said in her Budget speech in the Lower House of India.
In her first budget proposal of Modi 3.0, Sitharaman proposed to consolidate the 5% withholding tax rate on many payments to a 2% withholding tax rate and remove the 20% withholding tax rate on buyback of units by mutual funds or UTIs.
The withholding tax rate on e-commerce businesses is proposed to be reduced from 1% to 0.1%.
It is also proposed that TCS credit will be given on TDS deducted from salary.
“Further, we propose to decriminalise late payment of withholding tax up to the due date of filing of withholding tax returns. We will also provide standard operating procedures for default in payment of withholding tax and simplify and streamline compounding guidelines for such defaults,” the minister said.
“Remittance of funds towards employee share purchase schemes will be subject to TCS of 20 per cent if the amount remitted exceeds Rs 7 lakh,” said Saraswati Kasturirangan, partner at Deloitte India.
“As there was no specific provision for employers to consider the TCS amount while withholding tax from salary, the TCS amount was to be claimed by the employee in his tax return. This has now been made possible, reducing the cash flow challenges of employees,” Sitharaman said, adding that all major taxpayer services under GST and most services under customs and income tax have been digitised.
Over the next two years, all remaining services of customs and income tax, including issuing corrections and enforcement orders of appeals, will be made digital and paperless.
Sitharaman further said that the government's concerted efforts to reduce pendency of appeals in various appellate courts have started showing positive results but utmost caution will continue.
“To clear the backlog of first instance appeals, we will be adding more staff to hear and adjudicate appeals, especially those with significant tax implications,” she said.
She said that to reduce litigation and ensure certainty on international taxation, the government will broaden the scope of safe harbour rules and make them more attractive. It will also simplify transfer pricing procedures.
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