With a clear mandate from Indian citizens, the newly elected government is expected to bring a fresh perspective to tax matters. With indirect taxes out of the mix, efforts will be focused on bringing certainty and stability to the ever-changing face of income tax, which has been demanded by taxpayers.
The tax rates are unlikely to change substantially and the amendments made in the interim budget will remain intact. However, to increase India's competitiveness from an investment perspective, the government may reduce the peak tax rate for all businesses and entities to 25% (or even lower).
In order to increase corporate income tax revenue, it is important to expand the taxpayer base. With this in mind, some compliance processes could be made easier with the introduction of presumptive taxation measures.
The Central Board of Direct Taxes has taken certain steps to reduce litigation. It is also important that a new settlement scheme for disputes be conceptualised to end pending litigation. This scheme should allow taxpayers to ascertain pending taxes and settle disputes through a settlement process.
Encouraging the start-up sector is another important area which has come under consideration. The government should continue to support this sector, particularly in the context of global competition and the time required to develop a successful strategy.
Transactions offer businesses a unique opportunity to advance. However, the anti-avoidance provisions (in terms of the deemed valuation of shares) are hindering deal making. It is therefore important that provisions which deal with the taxation of deemed value should be rationalised to provide adequate protection to independent transactions driven by commercial rationale. Valuation rules concerning real estate assets must account for factual aspects and provide an adequate discount to achieve commercial valuation.
In addition to the above, certain areas such as interpretation aspects or sector-specific relief still need to be addressed. With the revision of the tax laws just around the corner, any changes may provide an indication of the new government's approach. It will therefore be interesting to see the box of possibilities unleashed in the government's budget on 5 July 2019.
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