ICAI submits Pre Budget Memorandum 2023

The Institute of Chartered Accountants of India(ICAI) has submitted Pre Budget Memorandum 2023 on Direct Taxes and International Taxation.

The Council of the Institute of Chartered Accountants of India considers it a privilege to submit this Pre-Budget Memorandum 2023 on Direct Taxes and International Tax to the Government. The memorandum contains suggestions for the consideration of the Government while formulating the tax proposals for the year 2023-24.

The suggestions have been broadly categorized under the following heads:

Part A : Suggestions relating to the policy & provisions of Income-tax Act, 1961

Part B : Suggestions for improving Tax Administration and Citizen Services

Part C : Suggestions pertaining to International Taxation

DETAILED SUGGESTIONS

Section 2(1B) – Definition of Amalgamation

Issue: Section 2(1B) of the Act provides for definition of Amalgamation in relation to the companies. The definition also contains various conditions to be satisfied for the amalgamation to be treated as tax neutral under the Act. The conditions contained in item (iii) of the said clause is that the shareholders holding at least three fourth in value of shares in the amalgamating company immediately before amalgamation should become shareholders of the amalgamated company. It is a known fact that the Amalgamation is given effect from the appointed date whereas the shares are issued on the effective date. Generally, there is time lag between the Appointed date and the effective date. In case of change in the shareholding in between the two dates, it would not be able to comply with the condition if read literally. It is also a fact that shares can be issued to the shareholders of the amalgamating company only after the effective date as shares cannot be issued retrospectively from the Appointed date.

In order to clarify the position and avoid any litigation on the matter, it needs to be provided that the condition needs to be satisfied with reference to the shareholders as on the effective date and not the Appointed date.

Suggestion: It is suggested that the provisions of Section 2(1B) be amended to clarify that the shares are to be issued by the amalgamated company to the shareholders of amalgamating company as they exist on the effective date and not on the appointed date.

(SUGGESTION FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)

Section 2(14) – Treatment of LIP as capital asset

Issue: Any sum received under life insurance policies (‘LIPs’) not exempt under section 10(10D) are taxable currently. Deduction of only premium while computing the net income / loss after surrender / withdrawal of policy doesn’t take care of inflation resulting in higher taxability.

Whether LIP can be regarded as capital asset?

Suggestion: It is suggested that LIP be treated as a capital asset falling within the definition of “property” under section 2(14) of the Act and accordingly be expressly clarified by amending the relevant provisions which would avoid unnecessary litigation. Indexation benefit (for premiums paid) will take care of inflationary impact – resulting in parity with other capital assets.

(SUGGESTION FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)

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