Tax on cryptos to tax holiday on EVs; Budget 2022 recommendations pour in

In the run-up to the upcoming budget, the government has held a slew of interactions with the industry, stakeholders, economists and sectoral representatives. While finance minister Nirmala Sitharaman kicked off the customary pre-budget consultations with the sectoral representatives on December 15, prime minister Narendra Modi too hosted an interaction with the country’s top business leaders on December 20.

A total of seven stakeholder groups having over 120 representatives met the finance minister till December 22. In PM Modi’s meeting, the top brass of India Inc., including Kenichi Ayukawa of Maruti Suzuki, Udak Kotak of Kotak Mahindra Bank, T.V. Narendran of Tata Steel, Sanjiv Puri of ITC and Preetha Reddy of Apollo Hospitals, laid out what they felt is needed to catalyse the much-needed boost to growth in the country.

Only a couple of days before the meeting with the industry leaders, PM Modi had also interacted with the leading players in the venture capital and private equity firms. After meeting the PM, one of the participants was confident that “big changes” are about to come in India.

With just about three weeks to go for the budget, Fortune India brings you some of the key recommendations the Ministry of Finance has received from various agencies.

Tax policy framework for cryptocurrency needed: Deloitte

Deloitte India has suggested that the government must come out with a tax policy framework on the cryptocurrencies owing to a lot of uncertainty around the crypto gains.

“Investments in cryptocurrencies have witnessed a sharp growth in India. However, a specific regulatory framework dealing with cryptocurrencies is still under deliberation,” Deloitte said.

“In the absence of specific provisions governing taxability of cryptocurrency in Indian tax laws, there are several open issues (also dealt in OECD report published in October 2020) triggering uncertainty such as whether such transactions need to be disclosed and offered to tax, method of computing the fair market value, costs, taxable income, and reporting requirements,” Deloitte India said.

“Therefore, it is recommended that a specialised regime for taxation of cryptocurrency be introduced covering, inter-alia, provisions dealing with classification of cryptocurrencies (capital asset vs. financial instrument vs. commodity), situations in which crypto currencies are taxable in India, head of income for taxation, expenses that can be claimed, income tax rate, and reporting requirements,” it added.

Deloitte India has also called for reduction in the highest tax rate of 30% to 25% and also an increase in the threshold limit for the highest tax rate from the current ₹10 lakh to ₹20 lakh. Deloitte believes that the move is needed to bring personal income tax rates at par with the corporate tax rates that were reduced in 2019. Deloitte has also called for additional deductions for expenses incurred by the employees during work from home.

Sustain infra pipeline: EY India

EY India had recommended a sustained momentum for the National Infrastructure Pipeline (NIP), which is crucial for economic growth. It has said that since the initial targets under the pipeline remained unmet, the government will need to enhance the spending to make for the shortfall. NIP envisages infra investment of ₹100 lakh crore by 2025.

"Sustained momentum for infrastructure spending is critical to achieving a sustained medium-term growth of 7.0% and above. For this purpose, NIP targets should be met. We missed the targets for the first three years of the NIP calendar," EY India said.

"Additional infrastructure spending in the last three years of the NIP should be undertaken in order to make up for the shortfall in the first three years of the NIP. The recalibrated medium-term fiscal consolidation path should accommodate the enhanced infrastructure spending relative to the original NIP targets," EY India added, further suggesting that financing of NIP may be supplemented by ‘Land Asset Monetisation’ which is still not a part of the National Monetisation Policy (NMP).

Tax holiday for electric vehicle sector: PHDCCI

Industry body PHDCCI has suggested the finance ministry to bring about a tax holiday for investments in the electric vehicle sector. “From an industrial perspective, many companies have been looking to set up base in India for the electric vehicle sector. In order to attract such companies, certain benefits in the form of deduction or exemptions would go a long way to achieve the vision of a pollution-free country by 2030,” PHDCCI said.

“Provision should be introduced under the Income-tax Act to provide tax benefits to the electric vehicle manufacturing companies either in the form of deduction or exemption of its profits by providing tax holiday for a few initial years, say five years,” the industry body added.

It may be noted that the Finance Act, 2021, introduced a new provision under Section 80EEB whereby an individual is allowed deduction for interest payment of up to ₹1.50 lakh on loan taken to purchase an electric vehicle from AY 2020-21.

Tax SMEs, LLPs at par with the corporates: Assocham

Industry body Assocham has urged the Ministry of Finance to ensure parity in tax liabilities between small firms, limited liability partnerships (LLPs) and the corporate sector. In its pre-budget memorandum on direct tax to the Ministry of Finance, Assocham said, "Firms/limited liability partnerships should not be required to pay tax at higher rate than corporates as most small and medium businesses are organised as firms, LLPs and proprietorship," Assocham said in its memorandum on direct taxes submitted to the finance ministry.