India Inc needs more tax breaks during Covid

Vidushi Gupta/Vinti Agarwal | Updated on March 27, 2020

While extending the date for filing returns is welcome, expediting tax refunds and lowering GST on essentials must be considered

To fight the spread of Covid-19, Prime Minister Narendra Modi announced a nationwide lockdown for 21 days. Most businesses have come to a complete standstill and the livelihoods of millions of people are at stake. Not only have profits drastically reduced, but cash flow blockages are also impeding the paying capacity of businesses across all sectors. Recently, the Ministry of Labour and Employment issued an advisory to businesses, asking them not to cut salaries or lay-off their employees.

While small businesses, travel and tourism, and the restaurant industry have reportedly been hit the hardest, sectors engaged in the supply of essential goods and services continue to operate amidst reports of severe shortage of protective health gear such as masks, body coveralls and sanitisers.

Governments across all major countries, including the US, Canada, Australia, the UK, China and Singapore announced economic packages to provide relief during these trying times. In the meanwhile, India Inc. was eagerly waiting for similar measures to be introduced by the task force set up by the Centre under the leadership of Finance Minister Nirmala Sitharaman. This piece analyses the tax policy changes announced by the Finance Minister during a press conference on March 24. Some of the tax policy changes announced are:

The deadline to file belated income-tax return or revised income-tax return for the financial year 2018-19 was March 31. This has been extended till June 30. Further, for delayed payments, interest rates have been reduced from 13 per cent to 9 per cent. The last date for filing the Goods and Service Tax returns for March, April and May 2020 and composition returns has also been extended to June 20.

For companies with turnover of less than ₹5 crore, no interest, late fee, or penalty will be charged under GST. For bigger companies, late fee and penalty will be null and void but interest will be charged at the subsidised 9 per cent.

A new Sabka Vishwas Scheme was introduced to reduce litigations, where people can settle their tax disputes by March 31 by paying their tax dues with no extra interest. The rules were notified on March 18 and only 12 days were given for compliance amidst the lockdown situation. This deadline has extended to June 30.

All compliances such as due date for issue of notice, intimation, notification filing of appeal, rectification, sanction, etc., under the Wealth tax Act, Income Tax Act, Prohibition of Benami Property Transaction Act, Black Money Act, Securities Transaction Act, and Viva se Vishwas Scheme have been extended till June 30.

The deadline to link Permanent Account Number with Aadhaar was March 31. Though the process of linking PAN with Aadhaar is quite simple, if the name or any other information in both these cards did not match, then the individual will have to go to the local centre to get it corrected.

Since there is a lockdown situation, the Finance Minister decided to extend the PAN-Aadhaar linking date to June 30.


The additional reforms

While these reforms are welcome, they are likely to provide only partial relief to the cash flow problems faced in the Indian economy. It is important that the Centre considers more holistic reforms to bridge the overall economic impact of the pandemic.

First, it is important to take measures that will increase cash flow in the economy. While the reforms adopted are likely to help, other measures such as expediting the process of tax refunds must also be considered.

Second, since the supply chain has been disrupted, reduction in the rate of GST on goods or services that are identified as essential may be considered. It is necessary to design such reductions bearing in mind that they do not impose restrictions on availment of input tax credit or add to taxpayers’ compliance burden.

Income tax breaks may also be offered to individuals providing emergency services during these trying times.

Third, indigenous manufactures of essential goods must be encouraged by providing tax breaks or rebates. This may be executed by allowing accelerated write-off of depreciation or one-time deduction of a percentage of the cost of asset.

And, finally, it is important to be mindful that any tax reforms introduced during this time should provide immediate short-term relief, but not at the cost of further distorting India’s already complex taxation framework in the long-run.

The writers are Senior Resident Fellow and Research Fellow, respectively, at Vidhi Centre for Legal Policy. The views are personal

Published on March 27, 2020

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