Corporate tax rate to be reduced to 25% over 4 years, general anti-tax evasion rules deferred by 2 years, REIT taxation eased
Corporate tax payers got most of what they had sought from finance minister Arun Jaitley, who in his Budget speech announced a phased
reduction in corporate tax rate to 25% over four years, deferred the dreaded general anti-tax evasion rules by two years, eased the taxation of real estate and infrastructure investment trusts and kept foreign institutional investors out of the minimum alternate tax (MAT) net.
Jaitley, who announced certain extra investment deductions to individuals, however, chose to increase the surcharge on super-rich individuals and companies by two percentage points to make up for scrapping the 1% wealth tax that has been levied on individuals with net wealth above 30 lakh. Compliance in wealth tax has been poor so far and the tax department could collect only R844 crore under this head in 2012-13 from 1.1 lakh assesses.
For individuals with income above R1 crore, the surcharge is raised to 12% with effect from 2014-15 fiscal. For domestic companies with income of R1-10 crore, it is up from 5% to 7%, while it has been increased from 10% to 12% for domestic companies with more than R10 crore income.
No change in the surcharge for non-resident companies.
“Reduction in corporate tax rate to 25% in four years will render the Indian tax rate competitive to that of major investment attracting global economies in spite of the small increase in the surcharge,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates.
Besides deferring GAAR to 2017-18 fiscal, Jaitley also exempted all investments made prior to March 31, 2017, from the purview of these rules.
Developers, who set up real estate or infrastructure investment trusts, will now get the concessional tax regime of 15% short-term capital gain tax and exemption from long-term capital gains tax on the transactions that they undertake. Under existing rules, this benefit is available only to those who invest in listed securities, not the developers who set up such trusts.
Also, offshore funds that employ fund managers in India got the relief that the mere presence of their fund manager in India will not constitute a permanent establishment. Thus, the income made by such funds from assets in other countries managed by the India-based fund manager will not be taxable in India.
Jaitley also addressed the concerns of foreign institutional investors (FIIs) by clarifying that they would not be liable to pay the 18.5% MAT that is imposed on companies, the tax liability of which falls below 18.5% of their book profits on account of various tax breaks. FIIs would be taxed only for the capital gains that they make in India.
Rajesh H Gandhi, partner, Deloitte, said the clarification that portfolio investors will not be liable to pay MAT will remove the uncertainty and anxiety created due to the recent tax notices issued asking them to pay MAT. Also, the tax pass-through status given to alternate investment funds would enable foreign investors to use this route to pool funds for investment into real estate and infrastructure sector.
Jaitley also proposed harsher punishment for tax evasion. Since most of the new concepts proposed by the direct taxes code conceived by Jaitley’s predecessor P Chidambaram have already been incorporated in the Income Tax Act, the finance minister gave it a decent burial.
Jaitley said he stands to lose over R8,300 crore from the direct tax changes he has proposed.