Making a small beginning to the declared policy of withdrawal of incentives and reduction in corporate tax rates, finance minister Arun Jaitley announced a reduced rate of 25% for only new manufacturing units, and 29% for small companies whose turnover was below Rs 5 crore in FY16. In last year’s Budget, the government had announced that corporate tax would be reduced to 25% from the existing 30% in a phased manner over four years, accompanied by simultaneous withdrawal of various exemptions. “The industry may be disappointed that the lower rate will apply only to manufacturing companies,” said Sudhir Kapadia, National Tax Leader, EY India.
Jaitley also announced a sunset date for specified incentives: SEZs, infrastructure facilities and R&D expenditure, among others. On the personal income tax front, the Budget gave a big push to the National Pension System (NPS) by limiting the tax benefit to only 40% of withdrawals both in NPS and Employees’ Provident Fund, to bring parity between the two. It also offered to incentivise first-time home buyers, by proposing an additional interest deduction of Rs 50,000 per annum, subject to conditions.
Taxing the rich more, the government proposed to increase the surcharge on income above Rs 1 crore from 12% to 15% and an additional 10% tax on dividends earned by individuals of over Rs 10 lakh. Ending uncertainties with regard to tax treatment of units located in the International Financial Services Centres such as GIFT City in Gujarat, it proposed to waive-off the security transaction tax (STT), commodity transaction tax, dividend distribution tax (DDT) and long-term capital gain (LTCG) tax, while reducing minimum alternate tax (MAT) to 9% against the prevailing 18.5%.
However, there was disappointment for many as there was no favourable rejig in tax slabs and no increase in deduction under Section 80C. Some relief in tax proposed for income earners up to Rs 5 lakh by way of an increase in tax rebate from Rs 2,000 to Rs 5,000 and an increase in house rent deduction from the existing Rs 24,000 to Rs 60,000 per annum for a certain category of tax payers was offered.
Amid the ‘nine’ focus areas for tax reforms, Budget 2016 is focused on reduced litigation by way of a limited-period compliance window for domestic taxpayers at an all-inclusive tax of 45%, and a dispute-resolution scheme for disputes arising on account of retrospective amendments, by waiving interest and penalty. The compliance window is proposed to be open from June 1 to September 30, 2016.
Other positives include deferral of Place of Effective Management by a year, reducing the holding period for long-term gains on unlisted shares from three to two years, and introducing a special tax regime for income from ‘patents’. The intent to introduce GAAR next year was reinforced, aligned to other commitments to introduce BEPS-related developments such as country-by-country reporting.
Win Some, Lose Some
The FM announced a sunset date for specified incentives: SEZs, infrastructure facilities and R&D expenditure, among others
The Budget gave a big push to the NPS by limiting the tax benefit to only 40% of withdrawals both in NPS and EPF, to bring parity between the two
It also offered to incentivise first-time home buyers