Budget 2016: From ancient times, the number ‘nine’ has been associated with a mystic connotation worldwide. Arun Jaitley, it seems, was hoping for some divine intervention when he presented his third Union Budget for 2016-17. The Budget seems to be high on purpose and focusses on transforming India against nine distinct pillars.
The pillar relating to a boost for growth and employment generation perhaps attracted the most welcome proposals. A reduced corporate tax regime of 25% has been proposed for manufacturing firms which are incorporated on or after March 1, 2016 and avail no deductions. For firms with a turnover of under Rs 5 crore for the year ended March 31, 2015, a marginal rate cut of 1% is also proposed. To promote start-ups generating employment that have been set up between April 2016 and March 2019, a 100% deduction of profits is proposed for three out of five years. However, all of this comes with the phasing out of various incentives — limiting accelerated depreciation to 40% from April 1, 2017, limiting R&D deduction to 150% from April 2017 and to 100% by April 2020, among others.
To promote research and innovation, a special patent regime with a 10% tax rate in respect of royalty/income arising from patents developed and registered in India has been proposed. The investor community has also been rewarded with an announcement of reduction in the period of holding of shares in unlisted firms from three to two years to qualify as long-term.
In a welcome move, the POEM rules have been deferred by a year, while GAAR continues to be effective from April 1, 2017. A pass-through status accorded to securitisation trusts and trusts of asset reconstruction companies will give a boost to firms which play a vital role in resolution of mounting bad debts of the corporate sector.
With a view to mobilise agriculture and the rural economy, the rich class has been asked to shell out additional taxes in the form of bearing an additional tax of 10% (imposed on individuals, HUFs and firms) on earning a dividend income in excess of Rs 10 lakh.
Some of the most laudable proposals concern reduction of litigation and providing certainty in taxation. A limited-period compliance window has been introduced for domestic taxpayers to declare undisclosed income and clear past tax aggressions by paying a tax of 45% of such undisclosed income. Reiterating this government’s commitment to provide a stable and predictable taxation regime, the FM proposed a one-time dispute resolution scheme for existing indirect transfer cases, wherein taxpayers can choose to pay tax liability without interest and penalty, if they withdraw the existing appeal/arbitration.