With the passage of The Finance Act, 2017 the government has granted itself unprecedented powers and protected itself against legal action, all through the virtue of having 282 MPs on its side. India’s finance bill was presented by the Finance Minister, Mr. Arun Jaitley on 1st February 2017 and was approved by the Lok Sabha with certain modifications on 22nd March 2017. The Lower house of the country voted the bill to be a money bill. Finance Bills are legislative proposals presented in the Lok Sabha before the beginning of every financial year and after the budget announcement for the next financial year. Generally, bills that exclusively contain provisions for the imposition and abolition of taxes and the appropriation of money out of the Consolidated Fund are certified as money bills. Special mention goes to the mandatory requirement for unique identification Aadhaar registration, cash transaction provisions which affect almost every stratum of society, quasi-judicial tribunals, and amended rules on funding of political parties.
Key amendments which can be constitutionally analyzed under the Finance act are listed:-
- e.f. July 1, 2017, every person must provide a unique identification Aadhaar number at the time of applying for a Permanent Account Number (PAN) or filing of income tax returns. Legally, this mandatory requirement to link will prevent people from having multiple PAN’s and will root out tax evasion and will make it easier to identify tax leakages or undocumented cash in India.
- The government’s objective to address tax leakages and tax evasion in India which requires every person to mandatorily provide authorities with his or her Aadhaar Number is criticized on the point that the biometric data collected by the Government brings in the risk of being potentially misused or disclosed to unauthorized recipients.
- Pursuant to the act, certain existing tribunals are to be restructured and merged for e.g. the Competition Appellate Tribunal with the National Company Law Appellate Tribunal, National Highways Tribunal with the Airport Appellate Tribunal and many more. While several of these appear to have merit on grounds of similarity in functions but they are a few mergers which raise questions that why are they merged and most importantly what raises the eyebrows is the constitutionality of merging some of the tribunals through a money bill.
- Generally, service conditions of various quasi-judicial tribunals are prescribed under various legislations. The finance act controversially amends such legislation by granting the power to the government. Critics of this amendment are that it gives unchecked power to the government which is to essentially install political appointees to govern such tribunals which in furtherance is eroding the principle of the separation of powers between the executive, legislature, and judiciary.
- Earlier, the companies Act of 2013 had provided a cap to the extent of 7.5% of the net profit of the last 3 financial years, to the contributions made by companies to various political parties. Further, the company was required to disclose the contribution made along with all the necessary details. This act again controversially amended the companies act by removing the cap and the requirement of disclosing the contribution so made. Though it is motivated by the government’s objective to carry out the political finance reform but gives rise to the implication that this amendment will actually make the political financing less transparent and will further give rise to the creation of shell companies to channel the undocumented money.
- The Finance Act, 2017 introduces a cap on cash transactions above INR 2,00,000, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, transactions exceeding will only be permitted through an account payee cheque or an account payee bank draft or an electronic clearing system. This amendment after the government’s demonetization drive in 2016 is intended to curb large unaccounted cash transactions that are injected into real estate and gold bullion. Though if criticized, the more effective way of preventing cash from seeping back into the black economy would have been to limit cash withdrawals from the banking system, forcing the uptake of internet-banking and other electronic methods of payment.
- The finance Act also controversially introduces powers to the authorities to conduct tax investigations. The earlier legislation, the Income Tax Act, 1961 empowered the relevant authorities to enter and search any building, seize any documents, etc. This act now empowers the authorities under the legislation to carry out a search or a seizure without having declared the reason for the same. This draconian amendment as quoted by many raises the fears that now the authorities may exercise their arbitrary and unchecked powers to conduct investigations that would further lead to the risk of harassment and potential tax terrorism.
- The finance Act also clarifies the power to impose a penalty. Earlier, the Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996 were amended in 2004 to empower the adjudicating officer to impose penalties on offenders for various offences, including their failure to furnish information, documents or returns. The Act reinforces this power, clarifying that the adjudicating officer will always be deemed to have this power.
Amendments with respect to certain sections and provisions in are listed:-
- According to present-day legislation individuals whose total income doesn’t exceed Rs 5,00,000 will be eligible for a rebate of Rs 5,000. Section 87A has been amended, which has reduced the rebate amount to half and also the rebate will now be available if the total income doesn’t exceed Rs 3,50,000
- A new section 234F has been introduced to provide fee for the delayed filing of the return to income.
- Penalty on professionals for furnishing incorrect information in statutory report or certificate under section 271J Applicable to an accountant or a merchant banker or a registered valuer: If they furnish incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder that can be imposed by the Assessing Officer or the Commissioner (Appeals) Penalty can be? 10,000 For each such report / Certificate. The penalty can be waived if there is “Reasonable cause”.
- At present donation given to various institutions/ funds are allowed as a deduction under section 80G. However, a donation in excess of Rs 10,000 cannot be made in cash.
- Corporate tax has been reduced from 30% to 25% for small firms with an annual turnover of up to 500 million rupees to boost investment. The rate of personal income tax on annual incomes of Rs 250,000 to Rs 500,000 is lowered to 5% from 10%. A 15% surcharge will be imposed on tax on annual income of over one million rupees.
In Conclusion, it is said that the amendments so done under the act have received a mixed response from the political, business, and academic communities. Critics have raised contentions that privacy is being eroded by requiring individuals to register for an aadhaar number, in reality, the integrity of the mechanism is being questioned. The amendment has still not met the development demands as presently only 3% of India’s population is estimated to file tax returns which is sadly inadequate for the growing financial needs of a developing economy. Critically important are the implications of the changes in the appointment of tribunals and politicization within. the increase of Government in such matters brings light to the risks of eroding the boundaries between executive and judiciary particularly. Further, the wide-ranging powers given to tax officers and authorities under the act could lead to misuse of power, tax terrorism and severely eroding the confidence of individuals in the institutional process. Finally, the amendments as to merging and appointing members in form of a money bill raised eyebrows, as to whether it was constitutional as according to Article 110 of the Indian Constitution money bills are normally confined to the imposition and abolition of taxes and the use of money in the Consolidated Fund. To equalize this argument it can be established that since the Government funding comes out of the consolidated fund, the merging of tribunals and the terms and conditions of the appointments might be therefore legitimately amended through a money bill. In a nutshell, the bill proposed and the act which came in force is equally beneficial to many whereas on the other hand challenges the constitution as well.
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