The FM in the last full budget focused majorly on agri and rural sector, health for poor, infra. He presented India’s most ambitious National Health Protection Scheme—“MODICARE” (apparently to replicate Obamacare) under which Rs 5 lakh cover will be provided annually to 10 crore families. The Economic Survey presented a scorecard.While there were many positives,there was a significant downside in agri and rural sector.
On the tax policy front, there are not many changes in the direct tax provisions, but the amended provisions seem to be sufficient enough to collect taxes to fund the Budget allocations. Under the existing regime, long-term capital gains arising from the transfer of equity shares of a company or a unit of equity-oriented fund or a unit of business trusts (collectively known as “long-term capital assets”), is exempt from income tax. However, transactions in such long-term capital assets carried out on a recognised stock exchange are liable to securities transaction tax (STT). The government feels that there has been an abusive use of tax arbitrage opportunities created by these exemptions. To minimise economic distortions and curb erosion of tax base, the government has proposed to withdraw this exemption. LTCG arising from transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust shall be taxed at a concessional rate of 10% of such capital gains exceeding `1 lakh, subject to STT being paid on a) both acquisition and transfer where the capital assets are equity shares or b) transfer of a unit of an equity oriented fund or a unit of a business trust. This amendment shall affect domestic investors as well as FIIs.
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The markets had factored a change in capital gains . Three lakh crore rupees of LTCG transactions are too tempting a figure to not levy tax on. The impact of tax is primarily alleviated by providing a grandfathering clause (for shares purchased up to January 31) and not increasing threshold for long-term gain from 12-24 months. It is expected that CBDT shall issue clarifications on its applicability.
The year, 2017, witnessed a major round of litigation before the Apex Court on the issue of Permanent Establishment. The reason for the amendment to the present provision is to align the Indian tax policy with the International Tax developments, ie, OECD’s BEPS Project related to Multilateral Convention to Implement Tax Treaty Related Measures (MLI), where a new Rule has been inserted to negate the business structuring carried out by way of commissionaire arrangements or fragmentation of business activities thereby preventing avoidance of payment of tax. Another major amendment on the International Tax Policy front. The scope of digital taxation has been brought into the I-T law aligning with the OECD’s BEPS project.
To promote the development of world-class financial infrastructure in India, an array of tax incentives are provided such as AMT at 9%, non-levy of STT, CTT and LTCG on specified transactions as well as non-applicability of DDT.
Under the IBC 2016, change in the beneficial owners of shares beyond permissible limit acted as a hurdle for restructuring and rehabilitation of companies to claim the benefits of carry forward & set-off of losses. To address this problem, relaxation has been given from the AY19.
Setting the corporate tax rate to 25% for companies having turnover up to Rs 250 crore is a welcome move that will benefit entire MSME sector, which accounts for 99% of companies filing taxes.
As a whole, I would hail this Budget as a noble effort from the FM to support PM’s ‘Make in India’ initiative regarding the various plans proposed to be rolled out.
-By Mukesh Bhutai, BMR Legal