In his 2015 budget speech, Hon’ble FM had committed to cut down the 30% domestic corporate tax rate to 25% by 2020. The Hon’ble FM has selectively fulfilled his commitment by reducing income tax rate for smaller companies with annual turnover up to Rs 50 crore to 25%. Corporate tax rate of 30% for other domestic companies remains un-altered.
Taxability of gains arising on account of transfer of carbon credits has been a matter of dispute as to whether the same should be taxed as business income or treated as non-taxable capital receipt. To resolve the tax dispute and encourage measures to protect the environment, a new section 115BBG has been introduced to provide a concessional tax rate of 10% in case of income arising from sale of carbon credits.
To give an impetus to start-ups, profit linked deduction available to the start-ups under section 80-IAC for 3 years out of 5 years has been amended to 3 years out of 7 yeaRs For the purpose of carry forward of losses in respect of specified start-ups, the condition of continuous holding of 51% of voting rights required under section 79 of the Act has been relaxed, subject to the condition that the holding of the original promoter/promoters continues.
Relief has been awarded to taxpayers paying book profit tax under Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) regime, wherein MAT/AMT credit can now be carried forward for an extended period of 15 years, instead of existing time-limit of 10 yeaRs Also, the industry’s concern over the inter-play of MAT with the Ind-AS accounting regime has been attempted to be taken care by proposing multiple amendments in section 115JB of the Act.
Much awaited amendment has been brought in section 194LC/194LD to extend the concessional tax withholding rate of 5% to interest payment made on Rupee Denominated Bonds (RDBs) in respect of which borrowing are made before 1 July 2020. To increase acceptability and transferability of RDBs in foreign market, capital gains tax exemption has been granted in a case of transfer of RDBs between two non-residents.
Continuing the commitment of India towards OECD BEPS project, thin capitalisation provisions have been introduced through section 94B to provide that interest paid by an Indian company or permanent establishment of a foreign company, in excess of 30% of EBITDA or interest paid to its associated enterprise, whichever is less, shall not be allowed as deduction in computing its taxable profit. However, the interest so disallowed shall not become a sunk-cost and would be allowed to be carried forward and set off for eight assessment yeaRs Minimum threshold of Rs 1 crore has been prescribed for triggering section 94B.
Time limit for completion of scrutiny assessments has been further reduced from 21 months to 18 months for Assessment Year 2018-19 and further to 12 months for Assessment Year 2019-20 and onwards. To reduce compliance burden, scope of domestic transfer pricing has been curtailed to be applicable only if one of the entities involved in related party transaction avails specified profit-linked deduction.
Also, the Hon’ble FM once again demonstrated its firm commitment to protect interests of foreign investors by specifically excluding investments held by non-residents (directly or indirectly), in a Category I and Category II FPIs from the ambit of indirect transfer provisions triggering capital gains tax liability in India. The positive investor sentiment complementing FM’s favorable move is evident from the rising stock market indices on the budget day.
All in all, the budget proposals indicated towards improving India’s image in ‘ease of doing business’ index and promote it as one of the preferred jurisdictions for foreign investment.
(This article is authored by Raju Kumar, Tax Partner, EY India. Views expressed are personal. Anmol Bhatia, Senior Tax Professional contributed to this article)