Countdown to Budget 2016-17, My Letter to FM


It’s that time of the year again, when the print media, business news channels and websites are loaded with opinions, advice and suggestions from various representatives of the industry, trade unions & farmers associations. All of them  have only one wish on their cards – somehow their opinion forms a part of the Finance Bill to be tabled by the revered Finance Minister on February 29th in the Parliament.

And despite the global economic slumpdown,  FM Arun Jaitley seems in a sweet spot with the Indian economy maintaining a comfortable growth rate.  He however has to meet the demands of all and sundry and with electoral agenda being on the cards for the Modi led government, populist measures rank at the top of the list.

As an Indian citizen  and with a established chartered accountancy practice to my kitty, suggestions to FM for the budget run in my blood at this time of the year that only get rest when I pen them down.

I hereby present a few points that I have categorized under suitable heads which I believe are necessary to keep the economy on track and be on the forefront of the global stage for achieving the astounding growth that the world is expecting from us:


  • Re-introduction of wealth tax under Income-Tax Act: Though wealth tax is abolished  but similar to gift tax element via section 56 of Income Tax Act 1961, wealth tax is also necessary to check large disparities of wealth.  I suggest that subject to integration of wealth tax with income tax law; a single tax return form covering wealth tax element should be introduced. Wealth tax or income tax whichever is more should be payable. The person who has paid income tax should not be taxed for wealth tax provided wealth tax is not more than income tax. This will not discourage the wealth formation in the country and at the same time restrict the formation of files with nil income tax and huge wealth.
  • Levy of tax on systematic agricultural activity by the corporates and HNIs to the tune of at least 5% of their net agricultural income. Such agricultural activity should be given status of normal business.
  • Tax may be imposed on charitable institutions at a  flat rate of 10 % basis on their income after certain threshold.
  • Farmers who are having more than 25 acre land should be taxed at least @ 5% as they are now not in need of money. They are land owners.
  •  Reward points based rating for honest tax-payers: The  tax payers who have not  defaulted and have clean files since last five-ten years should be given star rating under the online tax system regime that should carry weight in their profiles. They should made to feel honoured by rewarding them with higher stars. This will increase the tendency of becoming tax savvy in the society.
  • Abolition of dividend distribution tax & imposition of tax in case of higher dividend:  DDT should be abolished or reduced to 10 %. Those who are receiving dividend of Rs 5 lac or more from a single company should be taxed at 20 % flat. The overall recovery under this system shall be more and affluent promoters shall also contribute something to nation which they otherwise do not pay.
  •  Individual tax payers should mandatorily make a statement of affairs or balance sheet as part of income tax return. This will facilitate online declaration of wealth by all taxpayers including govt employees. I have noted that most of government employees have not declared their wealth which is giving negative signals to  other honest employees


  • Legislation should be brought  to avoid retrospective tax burden on the tax payer but retrospective amendment to rationalize and minimize litigations should be continued. This will restore the faith of the taxpayers under Indian tax system in the country and across the globe.
  • Avoid last day extension of dates for various compliance: This hurts diligent tax payers who comply before last day with due respect. Taxpayers who deliberately delay often pass comments to us like  “Why to take tension this is India. Definitely date will be extended”.  This way the faith of people who are honest & compliant is shaken and people have started taken authorities for granted.
  • Improving penalty proceedings of the system: It is not justified that the same officer imposes the penalty who made the assessment. He mechanically imposes the penalty and generates lot of appeals and litigations. On a high pitch unspeaking assessment, tax is imposed, interest is imposed, penalty is imposed, the demand pressed and a genuine tax payer faces lot of harassment.
  • Fair governance committee should be created: The tax system and governance should be under observation by a fair governance committee who should assess on their own the likely outcome of legal interpretation of particular law and guide their officers to act accordingly. This will avoid lot of unnecessary litigation, unnecessary creation of demand and ease the tax system for entrepreneur and tax payers.
  • Improving TDS system and its governance: The demand raised by OLTAS is sometimes not speaking and there is no “sunwai” anywhere. Officer recovers TDS as if it is a tax. This is not tax by itself. It is only a mode of recovery of tax. If somebody is paying TDS someone should be there to claim it and adjust against his tax liability in his return.
  • Removal of section 2(22) (e) from the income tax act, 1961. It is illogical andagainst the prudent and meaningful tax system.
  • Rationalization of section 14A of the Act or the rule 8D. I suggest that investments upto the paid up capital and free reserves of the company should be exempted and the interest expenditure should be taken on net basis in rule 8D. If it is changed retrospectively than it will automatically withdraw 80% litigation.
  • Rationalization of  provisions of section 35AD of Income Tax Act, 1961 to encourage more capital investment in various sectors.
  • Removal of clubbing provisions u/s 64 of the Income Tax Act, 1961.


  • Basic exemption limit should be set for 5 years on accelerated system basis. Limit should be raised @ 25000/- per annum for each category of tax payer for the succeeding 5 years and each budget should ratify the same unless otherwise decided. This will make the road map of mass tax payers clear.
  • Increase  in turnover limit for conversion of Private Ltd Company into LLP from Rs 60 lacs to at least Rs 5 crores.
  •  Increase in 80GG limit from Rs 2000/- per month to Rs 10000/-per month at least or alternatively fix the threshold according to categories of city.
  • Increase in threshold of minor to at least Rs 10000/- per children up to two children.
  • Threshold of TDS on bank FDR, professional fee, and brokerage should be increased to 25000/-, 100000/- and 25000/- respectively. This will give relief to mass small tax payers and also reduce the small entries from the TDS system and its load.
  • Avoiding MAT for small sized companies or reduction of rate to 10 % or alternatively apply AMT to small size of companies.
  • Increase  in threshold of small size companies under company law also for ease of doing business upto Rs 2 crore for paid up capital and upto Rs 20 crore for turnover.
  • Savings u/s 80C or otherwise should be encouraged according to the tax payers taxable income bracket preferably on percentage basis or slab basis. Higher the income higher savings should be encouraged in multiple saving routes


  • Option may be given for umbrella tax system for family member ITR filing and assessment.
  • Umbrella tax system in case of holding, subsidiary companies and other associate companies: This option may be given to the group companies provided the loss element or tax free element is ignored by the tax payer. Under company law also there should be a system for declaration of group. This will facilitate banks, credit agencies, stakeholder, revenue, etc to assess the overall control and management to keep check on frauds, manipulation, tax evasion etc. This will facilitate the govt system to assess the overall position of the group at one place and the genuine entrepreneur welcome the same if they are asked to pay same tax as they pay individually.
  • Bring back managing agency type system under company law: In the net based world where a single office can manage entire gamut of companies it will help a lot. The enterprises will be able to invite more talent, good governance and can afford highly paid employees if a managing agency company governs the same. The old company law dropped the same somewhere in 1975 such system but the system was good. Only the governance of that system failed.
  •  Safe harbour rule: In the domestic transfer pricing, safe harbor type rule  should be introduced. If both the tax payers are in the same tax bracket, then applicability should not arise. Direct definition of person covered should be made. At present there is confusion that a direct and indirect associate is also covered in the clutches of SDT. The problem is also coming in case of large joint families having six seven brothers and are doing same business with the support of each other but at arm’s length and facing this regulation. It is suggested that since individuals are doing business keeping their own interest first, therefore the relation of brother and sister should be eliminated. The lineal ascendants and descendents should remain as is.

As I pen down my thoughts, I do realize Mr FM may be addressed by tons of other CAs, finance experts and other industry representatives.  Yet as a honest tax payer and consultant, I believe that not only mine, but such ideas of various individuals, groups or representatives will be considered and definitely make a difference to the system and to my nation.

I dream of living in a prosperous nation





Countdown to Budget 2016-17, My Letter to FM