Budget 2018: Finance minister Arun Jaitley on Thursday cut corporate tax to 25% from 30% for companies with annual turnover up to Rs 250 crore. The lower rate will be applicable to 99% of the firms filing tax returns and is estimated to set the government revenue back by Rs 7,000 crore. The lower corporate tax is expected to leave businesses with investable surplus and create more jobs. With this, there are now 7,000 firms with a headline corporate tax rate of 30%, including the large capital-intensive firms that are able to reduce the actual tax outflow with assorted investment-linked deductions and exemptions. Jaitley said that anti-evasion measures had contributed to buoyancy in personal tax in the last two fiscals, clocking 1.95 and 2.11 in FY 17 and FY 18, respectively, compared with an average buoyancy of 1.1 in the preceding seven years. These measures yielded an additional revenue of Rs 90,000 crore, Jaitley said.
After a hiatus, the Budget 2018 brought back a 10% tax (without indexation) on long-term capital gains (LTCG) arising from sale of listed equity if the amount is above Rs 1 lakh. However, softening the blow for investors, Jaitley said that the tax would be grandfathered till January 31, which means that gains accrued on shares till January 31 from the date of purchase would be exempt from tax, and only the gains arising from February 1 till the date of sale would be taxable. Tax on LTCG will bring Rs 20,000 crore to the government coffers. Gains from equity shares held up to one year will remain short-term capital gain and will continue to be taxed at the rate of 15%. Jaitley added that most of the gains of LTCGH waiver accrued to corporates and LLPs, which led to business surpluses being invested in financial assets instead of manufacturing. “The return on investment in equity is already quite attractive even without tax exemption,” he said.
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Further, to balance the impact of LTCG tax, the government will levy a 10% tax on income distributed by equity oriented mutual fund. “This will provide level playing field across 30 growth-oriented funds and dividend distributing funds,” Jaitley said. Jaitley sought to incentivise salaried taxpayers vis-a-vis businessmen and professionals by allowing a standard deduction of Rs 40,000 even as he withdrew the benefit of transport and medical allowance of Rs 19,200 and Rs 15,000, respectively. “While this works out to an overall benefit Rs 5,800 to salaried taxpayer, the tax outgo might be higher due to a 1% increase in ‘health and education cess’ to be levied at 4%,” Rakesh Nangia, managing partner, Nangia & Co, said. The increased cess will be levied on all classes of taxpayers on payouts including minimum alternate tax and dividend distribution tax. This will accrue nearly Rs 11,000 crore to the government.
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Separately, to facilitate resolution of stressed assets under the Insolvency & Bankruptcy Code, the Budget has allowed set-off of both the unabsorbed depreciation as well as brought forward losses under the MAT provisions for companies whose shareholding may change during the process with majority control changing hands. Earlier, these benefits were allowed only if there is a continuity in the beneficial owner of the shares carrying not less than 51 %of the voting power. “This would ensure that companies do not end up paying taxes on gains on sale of assets etc, despite there being accumulated losses available for set-off,” Rahul Garg, partner-tax and regulatory, PwC, said.
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Customs duty of several items including smartphones, TVs and their components has been hiked to promote domestic manufacturing. Further, while education cess on imported goods has now been abolished, it will be replaced by a ‘social welfare surcharge’ of 10% on imported goods.