Finance Bill Amendments give Clarity on Health, Education Cess, Tax experts

With the government proposing amendments to the Finance Bill, tax experts said that there is an important clarification regarding the government’s decision to retrospectively disallow treating health and education cess as a business expense as some courts had ruled.

The government has now proposed that the tax department will not impose a penalty of 50% in case there is a reassessment of cases where entities had claimed that health and education cesses were business expenses. “This is an important clarification that will help avoid unnecessary litigation. If it was not clarified then an assessing officer could have gone ahead and sought a penalty,” said Sudhir Kapadia, tax leader at consulting firm EY India. Earlier this week, junior finance minister Pankaj Chaudhary had told Parliament that a set-off for losses in case of VDAs will not be allowed, which the Centre has now clarified through the proposed amendments. VDAs include cryptocurrency as well as non- fungible tokens (NFTs).

“While there is a debate going on over the legality of cryptocurrency, the government seems to be signalling that it does not want people to be in this business,” said EY’s Kapadia.

Once implemented, it will leave a dent for those who are making money via trading in cryptocurrencies. For instance, a trade may make a profit of Rs 150 on all profitable trades, while incurring a loss of Rs 120 on others. Under normal circumstances, s/he would have had to pay 30% tax on the profit of Rs 30, after setting off losses, resulting in a tax liability of Rs 9 and anet profit of Rs 21. Following the clarification, s/he will now have to pay 30% tax on the profitable transactions of Rs 150, which will translate into a tax liability of Rs 45. This means that on her/his crypto trading book, s/he will incur a loss of Rs 15.

“The government continues to take a very conservative stance on taxation of crypto assets. This will further disincentivise investments and trading in crypto,” said Gouri Puri, a partner at law firm Shardul Amarchand Mangaldas.