After the COVID-induced hardships, the public expected many benefits from the government. The government has developed various mechanisms such as asset monetisation and divestment. However, the proposals were not significant from a tax perspective. It was important to note that taxpayers weren’t put under additional burdens.
2021 Highlights and Misses
The government successfully used lockdowns to render the entire assessment and first appellate process virtual, even though tax-paying citizens were largely skeptical about it.
The Bombay High Court (HC), recently warned the tax department they could be subject to costs if the cases are disposed off without granting personal hearings. This is even after taxpayers have requisitioned.
Another case of public interest (PIL), brought in the Bombay HC to challenge the constitutional validity and faceless appeal scheme, was also filed. Since the government indicated it would make certain amendments, the case has been put on hold. The plan to virtualize the second appeal forum was also put on hold.
These schemes are a great idea. They will reduce costs, bring transparency, speed up the disposal of cases, eliminate physical interfaces, and more. The government must make these decisions in a transparent way and without bias.
Anxiety has been a result of the implementation of an equalisation levy. The 2021 amendments have reportedly expanded the scope of the levy’s applicability from e-commerce to other business sectors. Transactions between group entities have been subject to the levies in some cases, simply because they were conducted electronically.
Klarity is also needed regarding the scope of the equalization levy. It would be prudent to limit it to the ecommerce sector only.
Expectations
Despite the fact that many unicorns have emerged in India over the past few months, it is not incorrect to say that the start-up market has yet to realize its full potential.
The start-ups in India continue to attract investors and are expected to play a role in the country’s growth. It is important that we encourage as many investors as possible in India, given its size and potential for growth.
The income-tax exemptions played an important role in the attraction of investments in start-ups. These exemptions will expire in March 2022. The government should extend these exemptions, according to the start-up community.
It is expected that taxation of the digital economy will take place in one or both of the G20 countries. A globally acceptable system for taxation will also be implemented soon, according to the agreement!
Cryptocurrencies
Due to their uniqueness, cryptocurrencies are gaining significant traction around the globe. Due to the Supreme Court’s reverse of the ban imposed on the Reserve Bank of India (RBI), there is a lot of interest in India.
To provide a roadmap for certain cryptocurrency while also prohibiting private cryptocurrencies, the government plans to introduce a Bill during the current session. It will also provide a framework. Another important aspect is the taxability for income earned by holders of cryptocurrencies.
Although it is well-known that income from cryptocurrency will be subject to tax in India, there has been much debate about the exact basis, method, and quantum of such income. A mechanism could have a significant impact on the market and investors in cryptocurrency. Already, the government suggested that there could be tax proposals in the forthcoming budget. This would be a welcome step.
Many businesses had to reevaluate their business models after the pandemic, which led to a boom in mergers and acquisitions.
Expect non-resident buyers to request a withholding tax certification, which specifies the taxes to be paid in India. In certain cases, they may also require a no-objection certificate. The tax department can void transactions in the event of pending proceedings.
It has been difficult for Indian companies to get an NOC because of the pandemic. Many of these transactions are sensitive and time-sensitive so they will have to choose the least risky option. It is important to speed up the NOC process and issue certificates within one week, especially if there are not pending tax proceedings.