CII Budget Wishlist: Revised Tax Returns Deadline Extension, Urges Capital Gains Overhaul

Budget 2024 Expectations: The Confederation of Indian Industry (CII) has unveiled its set of recommendations for Budget 2024, focusing on simplifying personal taxation. The proposals include suggestions regarding capital gains tax and the timeframe for filing tax returns, among other key aspects.

Here are some of the recommendations made by CII;

Extended timeline for filing revised returns: The CII suggests extending the deadline for filing revised returns until the conclusion of the assessment year, aligning it with the extended timeframe for submitting Form 67. This adjustment aims to facilitate taxpayers in claiming or modifying foreign tax credits.

Form 67 serves as a declaration of income earned in a foreign country and details of foreign tax credits. Taxpayers who have paid taxes in a foreign jurisdiction can seek credit in India by submitting this form. Notably, in August 2022, the tax department extended the deadline for submitting Form 67, with retroactive effect from April 1, 2022.

The deadline for filing a return is July 31 in an assessment year. A belated return can be filed until December 31, three months before the end of the assessment year, but a penalty is applicable. It’s crucial to recognize that voluntary filing of returns is not permitted after December 31 of the assessment year. If the Income Tax department later selects your return for scrutiny, they will notify you of the required actions. Returns can be revised within three months before the end of the assessment year.

Share Buyback Taxation: Currently, under the open market route, the company incurs a buyback tax of 20 percent on the purchased shares, while simultaneously, the shareholder is liable to pay capital gains tax on the sold shares.

A share buyback entails a company repurchasing its shares from shareholders at a premium. This can be executed through either a tender offer or an open market offer.

According to the CII report, for listed shares undergoing buybacks through the open market route, the recommendation is to exempt companies from the buyback tax. Subsequently, shareholders would still be obligated to pay capital gains tax.

Capital Gains Taxation Rationalisation: Calls for simplifying the existing intricate taxation system have persisted for a considerable time. Two primary issues contribute to this complexity: varying tax rates and holding periods (the cutoff period distinguishing short- from long-term gains) across different asset classes. Additionally, certain assets benefit from indexation, while others do not, further contributing to the intricacies of the current system.

CII’s Proposal

The CII has proposed a 15 percent tax rate for short-term capital gains and a 10 percent rate for long-term capital gains arising from the sale of financial assets, including equity shares, preference shares, equity mutual funds, debt mutual funds, REITs, InvITs, bonds, etc. Additionally, it recommends establishing a minimum holding period of 12 months for qualifying for long-term capital gains.

Regarding non-financial assets like immovable property, the CII suggests taxing short-term capital gains at the applicable slab rate and setting the long-term capital gains tax at 20 percent, including indexation benefits. The proposed holding period cutoff for distinguishing short- and long-term gains is 36 months. In practical terms, if such an asset is sold after being held for 36 months or more, any capital gains should be treated as long-term.

The long-term capital gains tax and indexation benefits for debt funds were removed in 2023. CII’s recommendation, in effect, is to bring back the capital gains tax benefits and put them on par with equity funds.

Perquisite (Perk) Tax In Respect Of Electric Cars: A perk refers to any additional benefit, whether monetary or non-monetary, that an employee receives alongside their salary from the employer. In the case of a motor car provided by the employer, the taxation of this perk is contingent on specific factors, particularly whether the engine’s cubic capacity (cc) falls within the range of up to 1,600 cc or beyond.

As this criterion does not apply to electric vehicles (EVs), an alternative metric must be introduced for determining perquisite taxation.

The CII proposes amending the income tax rules to explicitly define the criteria for perquisite taxation on electric vehicles provided by employers to their employees.