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Changes in procedural law: Budget 2006

No return under one-by-six rule for persons with nil tax liability

What are the changes proposed in the Finance Bill, 2006 in procedural law?

Among the many changes in procedural law, a major one is that a person without income-tax liability is not liable to file return, even if he satisfies the one-by-six criteria from assessment year 2006-07, so that he need not file the return that will be due by October 31, 2006.

An amendment to Section 139A provides for allotment of PAN even without asking for it, where any transaction is of a nature that requires verification.

There is also the prospect of more transactions being notified for citation of PAN to keep a check on unaccounted transactions.

Back assessments, which have been initiated by the issue of notice under a wrong section or after the time stipulated in the section, are now validated with retrospective effect from April 1, 1990 and October 31, 1991.

There is restriction on the time limit for completion of assessments. What was required to be completed by March 31 will now have to be completed before December 31 preceding. The object is to ensure that the tax demanded in the assessment made before December 31 is collected during the same financial year.

Time limits for compliance are severely curtailed. A person who does not file timely return will lose statutory deduction under Sections 10B, 80IA, 80IAB and 80IB. Application for exemption for charitable institutions covered by 10(23C) will have to be made in the same financial year or lose the benefit altogether in contrast to the amendments made to Sections 142(1) and 147, which validate time-barred and wrong notice on the part of the Assessing Officer.

The provision not to excuse delay, even where there is sufficient cause, is hardly in keeping with either compassion or equity, which was proclaimed as a policy behind the budget.

Power is taken by the Board to prescribe conditions relating to the annexures required in the return.

What are the new provisions relating to TDS?

There are a number of provisions to ensure that tax is deducted or collected at source. Tax Deduction and Collection Account Number (TAN) will now require citation in all documents relating thereto. Delayed deposit of tax deducted or collected will now require interest for delay to be paid voluntarily before furnishing quarterly statements for each quarter under Sec. 201. Where quarterly statements are prescribed, annual statements are now dispensed with.

The reform in TDS by way of dematerialisation of TDS certificates dispensing with them is now postponed by another two years up to March 31, 2008. The reason for postponement by a year on the last occasion was the need to get the system stabilised.

The explanation for the present postponement as given in the Memorandum is that not only the system "is yet to fully stabilise" but also the quarterly statements are not being filed by a substantial number of deductors. So much for the enforcement of the law. Taxpayers entitled to credit on TDS certificates have reason to be happy because of this postponement, since they are less likely to get credit in the proposed regime in the absence of enforcement of collection and compliance on the part of persons, who deduct tax and either do not deposit it with the Government or having deposited it do not send quarterly statements.

What are the new provisions relating to tax return preparers?

A new cadre of professionals known as tax return preparers is created under Section 139B. Neither Chartered Accountants nor lawyers will be eligible for recognition under the new section.

But the new cadre will not be able to attest accounts of companies and accounts where tax audit is mandatory. The qualification for this class of professionals will be prescribed by the Board under the powers delegated to it.

The Board will not only prescribe qualifications but also the code of conduct, duties and obligations, recognition and withdrawal of recognition and such other matters.

Sec. 288 at present provides for a large number of persons who are qualified to practise as authorised representatives for representation before the authorities.

Authorised representatives under this section now can be employees of the assessee or officers of a scheduled bank where the assessee maintains accounts or any person who has passed accountancy examinations recognised by the Board, which will include all those who have passed the final examinations of the Institutes of Cost Accountants and Company Secretaries and those who have passed departmental examinations conducted by the Income-tax Department or Revenue Audit Department of the Office of the Comptroller and Auditor General of India, besides Chartered Accountants and lawyers.

If the object is to make this new class of practitioners responsible for correctness of returns, so that their certification will be on a par with the tax audit reports furnished by Chartered Accountants, this experiment will appear to be unnecessary as the purpose could have been achieved by an amendment to Sec. 288 requiring persons who could now be authorised representatives to be responsible for the attestation function as well.

Are there new penalty or prosecution provisions?

No Finance Bill can be complete unless more powers are taken to levy penalty or launch prosecution. New offences for penalty are failure to collect tax at source under Sec. 271CA and misquoting numbers, PAN and TAN under Sec. 272BB. There are mercifully no new prosecution provisions during the year.

S. Rajaratnam

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