The budget suggests the government wants to curb black money on all fronts. It has sought to restrict cash donations received by political parties to R2,000. However, the anonymity of a donor can be maintained with respect to donations made by way of electoral bonds.
The Budget has attempted to discourage cash transactions and promote digital payments. In case of small businesses (with turnover not exceeding R2 crore), the presumptive tax rate of 8% is proposed to be reduced to 6% in respect of turnover received by non-cash modes. In order to discourage cash payments, the threshold of R20,000 is proposed to be reduced to R10,000 in a single day for the purpose of claiming deduction. Currently, such dis-allowance is limited to revenue expenditure. The Budget has proposed to extend similar dis-allowance for cash payments made for capital expenditure. These amendments aim to incentivise transactions in non-cash mode and reduce cash in circulation.
There are measures to address tax avoidance transactions. One such is to deem the fair market value (FMV) as full value of consideration received as a result of transfer of unquoted shares for the purpose of computing. Similarly, as per current provisions, any sum of money or property received by individual or Hindu Undivided Family (HUF) by way of gift is regarded as income in the hands of a donee. This is proposed to be extended to all kinds of taxpayers, including companies.
The sunset clause for availing the beneficial rate of 5% on ECBs or on long-term bonds is proposed to be extended from July 1, 2017, to July 1, 2020. This benefit has been extended to rupee-denominated bonds (Masala bonds) with retrospective effect from April 1, 2016. Similar extension of sunset clause has been granted on interest received by FIIs and QFIs. There are also proposals to implement BEPS Action Plan 4 (limitation of interest deduction). The deduction of interest is restricted to the extent of 30% of EBITDA. The excess interest payment, which is not allowed as deduction, can be carried forward up to eight subsequent years and claimed as deduction (subject to above limits) in those years. The Budget has sought not to adversely impact investor sentiments.
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The Budget has introduced the concept of secondary adjustment in specific cases of transfer pricing. Thus, if as a result of (primary) transfer pricing adjustment, there is an increase in total income or reduction in loss of taxpayer, the AE is required to repatriate the excess amount to the taxpayer within the time as may be prescribed. This measure attempts to remove the imbalance between the cash account and the arm’s length profit of the taxpayer. In case such money is not brought into India, it is proposed to be treated as advance made by the taxpayer to the AE, which may be subjected to notional interest income in the hands of AE. Separately, it may be noted that the money brought into India due to such secondary adjustment may be subject to tax implication again when the same is repatriated out of India.