It is Budget time again and the countdown for the Union Budget 2022 has begun. India’s tax experts have layout a budget wishlist ranging from allowing flexibility on Covid-19 related expenses to taxation on economic profits and reducing long-term capital gains for start-ups to aligning with global tax rates to boosting M&A activity.
Industry experts say that there have been various hurdles for several companies, and the government could come up with some tax-related leeway to boost economic growth further.
The top expectation from corporate India is for tax deductibility of expenditure on Covid. The government had earlier refused to permit the deduction of CSR expenses.
Dinesh Kanabar, CEO, Dhruva Advisors, a tax advisory firm, told ET: “Given that working from home has become almost a permanent fixture, expenditure incurred by corporates in giving allowances to employees to facilitate working from home should be tax deductible and such allowances should not be taxable in the hands of the employees. With increasing inflation, there is a need to revisit the standard deduction for salaried employees.”
The government could also look to reinstate a 200% weighted deduction for in-house R&D expenditure, said tax experts.
In the last few years, the government has put special focus on large changes on the taxation side. The rate of tax on corporates has gone down to 15 per cent for new manufacturing companies and to 25 per cent for those corporates who do not avail of tax incentives, ET reported.
Experts say that even some incremental changes could go a long way, as many companies continue to struggle with the Covid pandemic and the disruption caused by it.
As of now, India taxes companies individually. There is a fear that allowing group taxation could lead to lower tax collections.
Many tax experts have even sought that the government remove tax hurdles for start-ups at a time when India is witnessing a boom in this space.
Presently, the taxation system discriminates in favour of investments in public markets rather than private investments. Long term capital gains (LTCG) for listed securities are taxed at 10% without indexation (with a higher surcharge capped to 15%). As against the above, LTCG on unlisted securities is taxed at 20% (with a higher surcharge up to 37%), ” said Sudhir Kapadia, national leader-tax, EY India told ET.
The government could also look at deferring ESOP taxation for employees of all ‘start-ups’ to the point of sale of ESOP shares, said Kapadia.
Tax experts also pointed out that the compliance burden for Indian companies has just shot up in the last few years, and the government could try and reduce this without impacting on their revenue.
