Budget 2018: The much awaited Budget 2018 is finally out. While there may not have been a lot that may directly impact the salaried class, some of the much expected clarity and rationalisation of incentives for corporate sector is welcomed. The biggest being extending the applicability of the reduced corporate tax rate (i.e. 25%) to domestic companies with the total turnover/ gross receipts up to INR 250 crores (as against INR 50 crores specified in the last budget). The Union Budget also saw some higher finance allocations and new tax incentives to promote the agriculture sector. It is now proposed to introduce a hundred percent deduction in respect of profits of Farm Producer Companies having a total turnover up to INR 100 crores.
The existing tax incentives to start-ups have also been extended for start-ups incorporated till March 31, 2021 (as against the original timeline permitting the said incentive availability to start ups incorporated till March 31, 2019). This along with the liberalisation of the definition and criteria of eligible business (in order to avail the said incentive) is bound to improve and further promote the effectiveness of the scheme and enhancing the start-up culture in India. Another measure to boost the employment generation and enhancement has been the tax deduction incentive on providing employment to eligible new employees.
At present, a deduction of 30% is allowed in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 240 days during the year. However, the minimum period of employment is relaxed to 150 days in the case of apparel industry. In order to encourage creation of new employment, this relaxation has been extended to footwear and leather industry as well. This has been further rationalized by allowing the benefit of this deduction for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year.
Watch: Budget 2018: The Story Of The Budget Briefcase | 5 Things We Bet You Didn’t Know
To top it off, there have been some major relief for companies seeking insolvency resolution (under the Insolvency and Bankruptcy code introduced last year), the biggest of them being the proposed amendment to the existing minimum alternate tax (MAT) provisions to provide that the aggregate amount of unabsorbed depreciation and loss brought forward (excluding unabsorbed depreciation) to be allowed to be reduced from the book profit, if a company’s application for corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 has been admitted by the Adjudicating Authority. As per the existing provisions for MAT, where the loss brought forward or unabsorbed depreciation is Nil, no deduction is allowed. This non-deduction was a deterrent to the companies on the path of rehabilitation. Relaxation of the provisions of section 79 for such companies is also a welcome amendment.
There has been something in the basket for the foreign companies as well. Exemption from MAT provisions for foreign companies adopting the presumptive taxation provisions will go well for ease and promotion of foreign investment. Further, in order to align its position in the Multilateral Convention to Implement tax treaty (MLI) – to which India is also a signatory, definition of “business connection” under the India Income tax act is proposed to be widened to include “any business activities carried through a person who acting on behalf of a non-resident, habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts”.
All in all, the present Government has attempted to focus the energies on the Industry growth and development and made an attempt to remove the hurdles from an administrative and governance perspective wherever possible. While the investor class of the economy might be impacted now with the introduction of the capital gains tax on long term capital gains on sale of listed shares (as per the applicable conditions) or with the newly introduced dividend distribution tax on the dividend pay outs to unit holders in an equity oriented fund; the impact of this development on the market over time would need to be seen.
(The author is Raju Kumar, Tax Partner at EY India. Ridhi Khanna, senior tax professional, EY contributed to the article. Views expressed are personal)