[Opinion] Critical Appreciation of Amendments Proposed in Finance (No. 2) Bill, 2024

CA V K Subramani – [2024] 165 taxmann.com 137 (Article)

Every year Budget creates a lot of euphoria among the taxpayers. Social media and TV channels when do not have any other material to munch they invent stories by selecting one narrative or the other. This time the ire of the tax paying middle class expressed by a prominent industrialist was blown out of proportion in primetime slots to create an impression as though the Government is bound to provide some tax benefits to the taxpayers. But it is good that the Government did not succumb to the media and stuck to its own policies and proposals which are independently debatable.

This refresher takes snapshot of the proposals which are prominently applicable.

1. Taxation of buy-back of shares: The proposed changes are by way of amendments to sections 2(22), 10(34A), 46A, 115QA and section 194A. The Bill proposes to shift the tax liability from the company buying back its shares to the recipient shareholders whose shares are (re)acquired. Presently, companies have to pay tax @20% plus surcharge and HEC (Effective rate 23.296%) on buy-back of shares. Now, the proposal would make the shareholders to pay tax on dividend on the amount received on buy-back of their shares and claim the cost of acquisition of shares as capital loss, whether short-term or long-term based on the period of holding. On the amount paid by the company, it has to deduct tax at source @10% under section 194. However, the moot question is for the company to know the shareholder from whom it has bought back so that it can comply with the TDS requirements. Given the poor compliance of the personal taxpayers, it would have been easier to collect the entire tax due from the transaction at the threshold itself from the company instead of making the investors to admit the dividend income. The existing provisions also meet the canons of taxation viz. certainty of collection of tax. In case, the shareholder is a company the amount received on buy-back when taxable as dividend, the benefit of section 80M could also be planned. The capital loss arising because of buy-back of shares could also be used for set off against other capital gains of the recipient/entity.

2. Standard deduction/deduction for contribution to pension scheme: One of the amendments proposed relates to allowance of standard deduction being proposed to be enhanced to Rs.75,000 from the present limit of Rs.50,000. Also, deduction under 57 in respect of family pension is proposed to be increased to Rs.25,000 from the present monetary limit of Rs.15,000. It may be noted that this enhanced limit would apply only for those opting default regime under section 115BAC. This too, seems to be discriminatory by allowing enhanced deduction to one class of taxpayers and denying the petty benefit to another class of taxpayers. Further the new regime is given further push by moderating the tax rates which seems to encourage spending by the public as against our social attitude of saving for the future.

Further, section 80CCD(2) is proposed to be amended to allow deduction up to @14% of the contribution of the employer. While the employer contributing 14% is eligible for deduction under section 36(1)(iva) in respect of pension scheme referred to in section 80CCD(2), the employee is eligible to claim the equal sum only when he opts for section 115BAC(1A)(ii). This also could have been given liberally to all the employees to provide some comfort when it is meant for savings.

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