An announcement for reducing basic rate of corporate tax from 30% to 25% over the next four years to make it competitive vis-à-vis other major Asian economies was made
The finance minister made a firm commitment to implementing the GST from the announced date of April 1, 2016, which will be a great enabler to growth and investment. He has increased the service tax rate to 14%, with an enabling provision of levying a further rate of 2% Swachh Bharat cess.
A surprise announcement of a roadmap for reducing the basic rate of corporate tax in India from 30% to 25% over the next four years to make it competitive vis-à-vis other major Asian economies was made. This will be accompanied by rationalisation of various kinds of prevailing tax exemptions and incentives for corporate taxpayers.
The FM announced a first-of-its-kind law on black money, making concealment of income, assets and evasion of tax in relation to foreign assets a prosecutable offence with punishment of a rigorous 10-year imprisonment. He also announced a new and more comprehensive benami transaction prohibition law to curb domestic black money transactions and ensuring confiscation of benami property besides prosecution.
Following international best practices, the tax pass-through treatment has been provided for most categories of AIFs so that tax is levied on the investor of the funds and not on the funds per se. This is a welcome evolution from the circular issued by the Central Board of Direct Taxes a few months ago, which seemed to miss the point about pass-through treatment altogether.
The much-needed clarity that long-term capital gains on transfer of units in real estate investment trusts (REIT) as part of IPO will be exempt, has now been provided. However, it appears that minimum alternate tax will continue to apply at the time of creation of REIT for a corporate sponsor as also dividend distribution tax is not relieved in case of special purpose vehicles investing in the properties.
There is a welcome announcement by the FM that permanent establishment (PE) norms will be modified to encourage offshore funds managers to relocate to India by not proposing to treat their presence as a PE in India.
The applicability of GAAR has been postponed by two years and it is also been made clear that it will apply only prospectively on investments made on or after April 1, 2017.
One of the thorns from the previous government was the retrospective applicability of tax on indirect transfers. The clarification on prescribing the threshold limit for the rule to apply has now been provided at a fairly reasonable level of 50% as recommended by the Shome panel. He could perhaps have made a greater endeavour to remove some of the legacy thorns in this Budget. Having said this, he deserves praise for walking a fairly bold path of stable tax policy regime.
By Sudhir Kapadia, National Tax Leader, EY India