Budget Series #3 Budget 2022 recommendations :Allow deduction for corporate social responsibility expenditure

DIRECT TAXES PROFESSIONALS ASSOCIATION

Sec. 37Allow deduction for corporate social responsibility expenditure Sec. 37

At present the Income Tax Act provides that the expenses incurred by the taxpayer on the activities relating to CSR referred to in Section 135 of the CA 2013 shall not be deemed to be incurred for the purpose of business and hence, shall not be allowed as a deduction for computation of income. The corporate sector spending on CSR is for laudable purposes andeffectively assisting the Government in undertaking social projects for the country. Therefore, the deduction must be allowed for expenses on CSR for the purpose of Income tax.

Recommendation: It is recommended that a deduction of CSR expenses incurred by the taxpayers pursuant to the policy of the Central Government and provisions of the Companies Act should be allowed in computing business income.

Budget Series #2- ICAI Budget 2022 recommendations -Section 2(14) – Treatment of LIP as capital asset

Suggestion

It is suggested that LIP be treated as a capital asset falling within the definition of “property” under section 2(14) of the Act. Indexation benefit (for premiums paid) will take care of inflationary impact – resulting in parity with other capital asset (SUGGESTION FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)

Issue: Whether LIP can be regarded as capital asset?

Justification :

Any sum received under life insurance policies (‘LIPs’) not exempt under section 10(10D) are taxable currently. Deduction of only premium while computing the net income / loss after surrender / withdrawal of policy doesn’t take care of inflation resulting in higher taxability.

Budget Series #1- ICAI Budget 2022 recommendations – Section 2(1B) – Definition of Amalgamation

Suggestion:

It is suggested that the provisions of Section 2(1B) be amended to clarify that the shares are to be issued by the amalgamated company to the shareholders of amalgamating company as they exist on the effective date and not on the appointed date. (SUGGESTION FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)

Issue & Justification

Section 2(1B) of the Act provides for definition of Amalgamation in relation to the companies. The definition also contains various conditions to be satisfied for the amalgamation to be treated as tax neutral under the Act. The conditions contained in item (iii) of the said clause is that the shareholders holding at least three fourth in value of shares in the amalgamating company immediately before amalgamation should become shareholders of the amalgamated company. It is a known fact that the Amalgamation is given effect from the appointed date whereas the shares are issued on the effective date. Generally, there is time lag between the Appointed date and the effective date. In case of change in the shareholding in between the two dates, it would not be able to comply with the condition if read literally. It is also a fact that shares can be issued to the shareholders of the amalgamating company only after the effective date as shares cannot be issued retrospectively from the Appointed date. In order to clarify the position and avoid any litigation on the matter it needs to be provided that the condition needs to be satisfied with reference to the shareholders as on the effective date and not the Appointed date.

Finance Minister Smt. Nirmala Sitharaman concludes pre-Budget meetings for forthcoming Union Budget 2022-23

More than 120 invitees representing 7 stakeholder groups participated in 8 virtual meetings

Press Release dated Dec 22, 2021

Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman chaired the pre-budget consultation meetings for Budget 2022-23 held in virtual mode from 15th to 22nd December, 2021.

More than 120 invitees representing 7 stakeholder groups participated in 8 meetings scheduled during this period. The stakeholder groups include representatives and experts from Agriculture and Agro Processing Industry; Industry, Infrastructure and Climate Change; Financial Sector and Capital Markets; Services and Trade; Social Sector; Trade Union & Labour Organization and Economists.

Union Ministers of State for Finance Shri Pankaj Chaudhary and Dr. Bhagwat Kishanrao Karad, Finance Secretary Shri T.V. Somanathan; Secretary, DEA, Shri Ajay Seth; Secretary, DIPAM, Shri Tuhin Kanta Pandey; Secretary, Financial Services, Shri Debashish Panda; Secretary, Corporate Affairs, Shri Rajesh Verma; Secretary, Revenue Shri Tarun Bajaj and senior officers from Ministry of Finance were also present during the meetings. Secretaries of other Ministries/Departments concerned participated through online mode.

The stakeholder groups made several suggestions on various issues that included increased R&D spending, infrastructure status for digital services, incentives to hydrogen storage and fuel cell development, rationalisation of income tax slabs, investments in online safety measures etc., among others.

The participants lauded government’s efforts in efficient handling of the economy during the pandemic and retaining India’s status as the fastest growing major economy.

Finance Minister Smt. Sitharaman thanked the participants for sharing their valuable suggestions and assured that suggestions will be carefully considered while preparing the Budget 2022-23.