* New alternative tax regime based on gross asset tax of 2% for companies;
* Withdrawal of long term capital gain exemption on listed securities resulting in taxation @ 30% for non residents;
* Non grandfathering of tax holiday to existing units in Special Economic Zones (SEZ) and no benefit to new units;
* Introduction of General anti avoidance rules (GAAR) which brought lot of uncertainty regarding the level of tax one would have to face;
* Provisions of Indian tax law to override the tax treaties;
* Widening of residence rules for taxation of non resident companies;
* Presumptive rental value for computation of house property income;
* Taxation of non profit organizations @ 15%;
* Introduction of Exempt- Exempt- Tax Regime on saving schemes.
The revised discussed paper has almost covered all the above burning issues and relaxation has been made to a great extent. For companies, the biggest relief is withdrawal of Gross Asset Tax regime and restoration of MAT regime linked to book profit. GAT was proposed to fill the revenue gap on account of revamping of tax slabs and reduction of tax rates (for all tax payers). With GAT not being implemented, the proposed tax rates and slabs are likely to be revisited northwards.
The much sought incentive for SEZ units is however not granted and only limited relief is grandfathering of profit linked incentive for existing SEZ units (which will be operational at the time of implementation of the code). While Government of India has already notified around 150 SEZs and granted formal approvals to around 600 SEZs, resulting in substantial investment and FDI flowing in SEZs, the removal of tax incentives for units is definitely going to have very adverse impact on the demand in SEZs. At the same time one can anticipate a sudden rush to register units prior to introduction of DTC.
The revised paper proposed to introduce capital gain tax scheme on listed securities is new form. It proposes to allow specified standard deduction from long term capital gains on listed equity shares to reduce the effective tax rate on long term capital gains which is proposed to be 30% for non residents and for residents it is as per the applicable tax slab/ rates. It has also been clarified that income of FIIs from sale of securities shall be deemed to be capital gains to award a standard treatment for this income. Re introduction of calibrated Securities Transaction Tax is on the cards.
DTC introduced General Anti Avoidance Rules (GAAR) empowering the tax authorities to disregard an arrangement/transaction if it is for purpose of availing tax benefit. Internationally GAAR provisions are used to attack egregious examples of artificial tax manipulation. For striking the balance between legitimate tax minimization and illegitimate tax avoidance, the provisions are now proposed to be made specific and guidelines shall be issued to avoid subjective judgment. At the same time threshold limit would be provided to trigger GAAR provisions.
CFC rules (controlled foreign corporation) to be introduced so as to tax passive income earned by a foreign company which is controlled directly- indirectly by an Indian resident to address deferrement of taxation by Indian companies from their overseas operations. The beneficial treatment under tax treaties vis a vis DTC provisions is also restored for non residents subject to GAAR and CFC provisions.
The writer is tax partner, Ernst & Young. views Expressed are personal