MoF: Submission requesting for relaxation of compliance provisions under Income Tax Act, 1961 amidst the COVID-19 pandemic

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MoF: Submission requesting for relaxation of compliance provisions under Income Tax Act, 1961 amidst the COVID-19 pandemic

Tejasvi

@tejasvi

May 5, 2021

Public Policy

290

Based on inputs from the Industry, NASSCOM made a representation to Ministry of Finance (MoF) on May 4, 2021 highlighting the following issues:

A) Deferral of implementation of S.194Q of Income Tax Act, 1961 (IT Act)
S. 194Q of IT Act, as introduced vide Finance Act 2021, requires the buyer to deduct tax at source @ 0.1% on purchase of goods exceeding INR 50 lakhs in a Financial Year (FY), if the turnover of the buyer in the preceding year exceeds INR 10 crores. S. 194Q will be effective from July 1, 2021.

In this regard, it is important to note that compliance with S. 194Q require changes to be made to ERP systems, which will require time for end-to-end implementation. Given the current pandemic, companies have allowed their employees to work from home and are channelising their efforts on addressing safety and welfare of their employees. Moreover, many companies are still in the process of amending their ERPs to implement Tax Collection at Source (TCS) provisions under S. 206C(1H) which were introduced last year. Compliance with this new requirement within such a short span would be onerous for the industry.

Recommendation: In this regard, we have requested MoF to defer applicability of S.194Q to April 1, 2022.

B) Deferral of S.206AB and S.206CCA of IT Act in absence of clarity on the manner and mechanism for validating income tax returns of vendors and sellers
S. 206AB and 206CCA, as introduced vide Finance Act 2021, provides for higher rates of TDS and TCS for a person who has not filed income tax return in the last 2 years and the due date for filing return has expired. Based on inputs rfrom Industry, we would like to highlight the following issues with regard to operationalisation of the above provisions:

This provision puts the onus on payers (in case of TDS) / payees (in case of TCS) to check whether the other party has filed tax return and accordingly do higher withholding. This is prone to practical challenges as there is no facility available for payers/ payees to confirm return filing status of the other party for previous 2 years or vice-a-versa. This will increase compliance burden on payers/ payees, as before making every payment, it would be necessary to check whether such payer /payee is covered under the provisions of this section and whether tax is required to be deducted or collected at higher rate.
The provisions require deductor to verify if the payee has filed return for last two years. No mechanism has been specified as to how deductor can verify return filing status by payee. For example, applicability of this provision in the case of TDS on dividend under S.194 could be a huge challenge for large listed companies having numerous shareholders.
Time limit for filing tax returns varies across different category of taxpayers and also within the same category of tax payers, separate timelines are prescribed for taxpayers required to file tax audit reports and transfer pricing compliances in Form 3CEB. This poses incremental challenges on tracking tax returns filing status.

Recommendation: In absence of tech based solution to validate tax return filing, we have requested MOF to defer applicability of S.206AB and 206CCA to April 1, 2022. This will give sufficient time to companies to build the compliance systems and test the same for accuracy. Further, we would request CBDT to build an API mechanism to validate tax return filing, similar to the API mechanism in place for Goods and Services Tax (GST) returns.

C) Reduction in rates of TDS and TCS for FY 2021-22
The IT Act provide for deduction of TDS and TCS at prescribed rates while making payments. The CBDT had earlier, reduced rate of TDS and TCS by 25% for payments made up to March 31, 2021. This was done with the intention of providing more funds at the disposal of the tax payers and increase liquidity.

Recommendation: We have requested MoF to provide similar relaxation for the TDS and TCS rates applicable for payments / credits made during FY 2021-22.

D) Perquisite taxation in hands of employee for COVID-19 related reimbursements
As per S.17(2) of IT Act, if an employer reimburses medical treatment expenditure incurred by an employee for himself or any family member in a non-government hospital, such medical treatment reimbursement would be exempt only if the following conditions are satisfied:

The treatment is for prescribed diseases or ailments as laid out in Rule 3A of the Income-tax Rules, 1962 (Rules) which inter-alia includes disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, etc. requiring medical treatment in a hospital for at least 3 continuous days; and
Such treatment is undertaken in a hospital approved by the Principal Chief Commissioner or Chief Commissioner.

In this regard, we have highlighted to MoF that with the onset of second wave of COVID-19 in India, numerous companies are supporting their employees with their medical treatment expenditure. In the current pandemic where medical infrastructure in the country is tested to its limits, and individuals seeking treatment are facing difficulties to get access beds/oxygen, restricting tax exemption to only hospitals approved by the Principal Chief Commissioner or Chief Commissioner is restrictive and puts unduly burden on employees who underwent treatment in such unapproved hospitals.

Recommendation: Given the challenging times, we have requested MoF to clarify that treatment for COVID-19 should be covered under the ailments referred to in Rule 3A(2) of the Rules and the mandatory requirement of undertaking treatment only in approved private hospitals for claiming exemption should be relaxed to include all hospitals and medical facilities.

We hope you will find this useful. We will keep you posted on further developments in this regard.

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Tejasvi