Budget amendments in Income-Tax Act: How plugging cess/surcharge loophole could deliver authorized readability

The Union Budget introduced in some amendments to the Income-tax Act that may be efficient retrospectively. Making a retrospective modification to the legislation from 2005-06, the Budget has clarified that cess and surcharge is not going to be allowed to be claimed as deductions within the type of expenditure — a apply that some corporations and companies have been resorting to within the absence of authorized readability. It has additionally allowed exemption of the quantity acquired for medical remedy and on account of loss of life on account of Covid-19 retrospectively from April 1, 2020.
The Budget has additionally made adjustments to the I-T legislation making house for the tax division to hunt clarification for supply of funds by the hands of the creditor.

Retrospective change about cess and surcharge
Citing some courtroom rulings over time that had given profit to taxpayers in claiming cess as expenditure and never tax, the tax division mentioned the retrospective modification is being carried out to right the anomaly. “This amendment will take effect retrospectively from 1st April, 2005 and will accordingly apply in relation to the assessment year 2005-06 and subsequent assessment years,” the Budget paperwork said.

Amendments on well being, Covid-related expenditure
The Budget has allowed exemption of the quantity acquired for medical remedy and on account of loss of life on account of Covid-19 retrospectively from April 1, 2020. It mentioned, “Any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to Covid-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be the income of such a person.”
The Budget has additionally allowed exemption for quantity acquired by a member of the household of a deceased particular person, from the employer of the deceased particular person (with out restrict), or from another particular person or individuals with such cash not exceeding Rs 10 lakh, the place the reason for loss of life of such particular person is sickness regarding Covid-19 and the fee is, acquired inside twelve months from the date of loss of life of such particular person. These amendments will probably be efficient retrospectively from April 1, 2020.

Separately, items and freebies to medical doctors shall not be handled as enterprise expenditure below Section 37 of the Income-tax Act.

Legislative change for questioning sources of funding for corporations
In one other legislative change, a provision has been launched stating that the supply of funding for mortgage and borrowings for a recipient will probably be handled as defined provided that the supply of funds can be defined within the arms of the creditor. This may have an effect on funding of companies, particularly startups, if the creditor isn’t a enterprise capital fund, a enterprise capital firm registered with markets regulator Sebi.“Earlier, if any company used to have bogus entries, taxpayer would just provide details such as PAN and other financial details of the creditor and that was enough for the tax department. Now, it’s upon the recipient to prove it’s the right source of income and they had the right net worth to provide this amount,” Amit Maheshwari, tax companion, AKM Global, mentioned.