Budget 2014: Top 10 expectations from India Inc

4. No Adjustment in case of Tax Neutral Domestic Transfer Pricing

The international transfer pricing transactions have resulted in high-pitched assessments by tax authorities with additions estimated at Rs. 70,000 crores. To avoid similar potential litigation from the domestic transfer pricing perspective which has been introduced from financial year 2012-13, the tax adjustment in the income of the taxpayer should be restricted only to the cases where there is tax loss to the revenue. In other words, in case of transactions between associated enterprises which are subject to same incidence of tax resulting in tax neutrality, no adjustment should be made.

5. Reducing Legislative uncertainty caused by Retrospective Amendments

The retrospective clarificatory amendments introduced under Section 9(1)(i), Section 2(14) and section 2(47) to tax capital gain on direct / indirect transfer of capital asset w.e.f. 1.4.1962 is regressive. It has eroded the confidence of the international investor community Such retrospective amendments need to be repealed to restore India's image as an investor friendly investment destination with a stable tax regime.

6. Deduction for Corporate Social Responsibility costs

The new Companies Act 2013 obliges companies to mandatorily spend 2% of average net profits under Corporate Social Responsibility (CSR). However at present, there is no specific provision under the Income Tax Act, 1961 which allows deduction for CSR Expenditure. Allowance of deduction through a specific provision will provide certainty regarding tax treatment.

7. Substitution of Dividend Distribution Tax (DDT) with Withholding Tax for foreign investors

The concept of DDT is uncommon globally and acts as a disincentive to the foreign investors. The DDT is not in the nature of withholding tax and is not eligible for tax credit in the home countries of the foreign investors. It is imperative that the dividend distribution tax paid is converted into withholding tax. This shall enable the foreign investors to claim the tax credit in their home country for the taxes paid on dividends in India without any loss of revenue to the Indian tax authorities.

8. Deletion of Section 40a(i)/(ia)

Under Section 40(a)(i)/(ia), expenditure on which tax is not deducted or / and is not paid to the credit of Central Government is liable for disallowance. There are several types of payments requiring deduction of tax at source such as interest, contractors' payments, rent, brokerage, professional fees to non-residents/residents. The Income-Tax Act contains stringent provisions relating to non-deduction of tax at source by way of levy of interest and penalty. It is punitive to provide for disallowance of entire expenses in computing taxable income as this results in penalizing the taxpayers twice for the same contravention. Section 40(a)(i)/(ia) should be deleted accordingly.

9. Continuation of lower rate of 15% tax on dividends received from foreign companies -under section 115BBD

In order to encourage repatriation of funds from specified foreign companies, a concessional rate of tax of 15% on dividend received by an Indian company from such foreign companies (where it holds 26% or more in the equity share capital) was introduced under section 115BBD. The provision of concessional rate of tax under section 115BBD ended on 31.03.2014. Since Section 115BBD acts an incentive for repatriation of income earned by resident companies from investments made abroad and to set off the same while computing the DDT, the provisions should be continued for Financial Year 2014-15 also.

B. Individual Taxpayers

10. Increase in limits for deduction under Section 80C

To encourage savings for the growth of economy, the present limit for deduction under section 80C of the Income Tax Act (the Act) of Rs. 1,00,000 in respect of certain investments such as Provident fund, ELSS, life insurance premium, housing loan repayment and 5 year bank deposits needs to be increased to Rs.2,00,000.

(The author is founder RSM Astute Consulting Group. Views and recommendations expressed in this section are his own and do not represent those of EconomicTimes.com.)