Budget 2021 proposes Dispute Resolution Committee for small taxpayers

Budget 2021 proposes Dispute Resolution Committee for small taxpayers

Endeavor is to ensure that a taxpayer feels motivated to voluntarily comply with tax laws and the honest taxpayer gets all facility to which he is entitled to

The Finance Minister Nirmala Sitharaman in the budget 2021 has proposed the formation of a Dispute Resolution Committee (DRC) in order to facilitate quicker relief to taxpayers in tax disputes. It is projected to have multiple benches which will allow small taxpayers to settle tax matters without going through the appellate process.

Central Board of Direct Taxes (CBDT) Chairman P C Mody said on 4 February 2021 that the Income Tax department (I-T department) will make all the information available as it is receiving from various other agencies like Securities and Exchange Board of India (SEBI) or Ministry of Corporate Affairs (MCA) in form 26AS to provide taxpayers to file correct tax returns.

The Finance Minister Nirmala Sitharaman in her 2021-22 Budget speech on 1 February 2021 mentioned that the DRC will cater to small taxpayers having a taxable income of up to Rs 50 lakh and a disputed income of up to Rs 10 lakh. The committee will have the powers to reduce, waive any penalty or give immunity from any offence punishable under the Income Tax Act.

The committee will be formed under a new Section, 245MA, of the Income Tax Act. The tax department has been constantly working towards reducing the physical interaction between department officials and taxpayers in order to bring in more transparency. The department has already launched faceless assessment, appeal and penalty mechanisms. The faceless reforms are expected to result in reduced disputes.

At an Assocham post-budget event, Mody said, "Our constant endeavor is to ensure that a taxpayer feels motivated to voluntarily comply with tax laws and the honest taxpayer gets all facility to which he is entitled to and at the same time the persons who are trying to game the system or trying to take advantage in unfair and undue manner they will also get taken care of. This would get strengthened by the constant exchange of information which we are having with CBIC, MCA or SEBI."

Mody clarified that a tax return is picked up for enquiry only in case of mismatch and where multiple red-flags are being shown by the system. "So, we have tried to provide for some alternative dispute resolution mechanism and, since it would have multiple benches and it would cater to the lower end of the taxpayers, I think this would again give them an opportunity to come out and settle their tax matters without going through the rigorous appellate process," he said.

Kamlesh Varshney, Joint Secretary (Tax Policy and Legislation) in the Finance Ministry, guaranteed that there would be no double taxation and it will work exactly in the same manner as the way interest income on bank fixed deposits is taxed at present, with respect to the new provision of taxing interest on provident fund deposits exceeding Rs 2.5 lakh a year.

He explained the scheme through an example that "when banks deduct 10 per cent tax on the interest that is accrued on fixed deposit and if the tax payer's tax slab is higher than 10 per cent then he/she has to pay advance tax, while taxpayer receives a refund if the tax liability is less than 10 per cent".

It was said in the budget that interest on employee contributions to provident fund over Rs 2.5 lakh per annum would be taxed from 1 April 2021. Less than one per cent of the total six crore Employees Provident Fund Organization (EPFO) subscribers actually contribute more than Rs 2.5 lakh in the fund.