BUDGET 2016

DIRECT TAX LAWS


Shripal Lakdawala
Partner with Deloitte Haskins & Sells LLP
Homi Mistry
Partner with Deloitte Haskins & Sells LLP
Ruchi Shah
Assistant Manager, Deloitte Haskins & Sells LLP
Yogesh Shah
Partner with Deloitte Haskins & Sells LLP

INDIRECT TAX LAWS


Manish Jain
Principal Associate, Lakshmikumaran & Sridharan
Kishore kumar
CA
Akhilesh Kangsia
Senior Associate from Lakshmikumaran & Sridharan
Nirali Akhani
Associate Lakshmikumaran & Sridharan

BUDGET (2016)

Budget Impact
Tax Rates Back
Key Amendments Back
Changes in TDS/TCS Back
Startup Announcements Back
  • Up to Rs. 2,50,000 Nil
  • Rs. 2,50,001 to Rs. 5,00,000 10%
  • Rs. 5,00,001 to Rs. 10,00,000 20%
  • Above Rs. 10,00,000 30%
  • * Surcharge at 15% if net income exceeds Rs. 1 Crore
  • * Education cess and Secondary & Higher Education cess at 3% of Income Tax & Surcharge
  • * Relief u/s 87A up to Rs. 5,000 for resident individuals having total income of up to Rs. 5,00,000
  • Up to Rs. 2,50,000Nil
  • Rs. 2,50,001 to Rs. 5,00,000 10%
  • Rs. 5,00,001 to Rs. 10,00,000 20%
  • Above Rs. 10,00,000 30%
  • * Surcharge at 15% if net income exceeds Rs. 1 Crore
  • * Education cess and Secondary & Higher Education cess at 3% of Income Tax & Surcharge
  • * Relief u/s 87A up to Rs. 5,000 for resident individuals having total income of up to Rs. 5,00,000
  • Up to Rs. 3,00,000 Nil
  • Rs. 3,00,001 to Rs. 5,00,000 10%
  • Rs. 5,00,001 to Rs. 10,00,000 20%
  • Above Rs. 10,00,000 30%
  • * Surcharge at 15% if net income exceeds Rs. 1 Crore
  • * Education cess and Secondary & Higher Education cess at 3% of Income Tax & Surcharge
  • * Relief u/s 87A up to Rs. 5,000 for resident individuals having total income of up to Rs. 5,00,000
  • Up to Rs. 5,00,000 Nil
  • Rs. 5,00,001 to Rs. 10,00,000 20%
  • Above Rs. 10,00,000 30%
  • * Surcharge at 15% if net income exceeds Rs. 1 Crore
  • * Education cess and Secondary & Higher Education cess at 3% of Income Tax & Surcharge
  • Tax Rate (Domestic Company)** 30%
  • Tax Rate (Foreign Company) 40%
  • MAT 18.5%
  • * Surcharge on Domestic Company : 7% if net income exceeds Rs. 1 Crore and 12% if net income exceeds Rs. 10 Crores
  • * Surcharge on Foreign Company : 2% if net income exceeds Rs. 1 Crore and 5% if net income exceeds Rs. 10 Crores
  • * Education cess and Secondary & Higher Education cess at 3% of Income Tax & Surcharge
  • ** Tax Rate is 29% if turnover or gross receipt of the company doesn’t exceed Rs. 5 crore
  • Tax Rate 30%
  • * Surcharge at 12% if net income exceeds Rs. 1 Crore.
  • * Education cess and Secondary & Higher Education cess at 3% of Income Tax & Surcharge

INDUSTRY WISE IMPACT

Individuals

1 Tax rate reduced from 10% to 5% for income between 2.5 lakh – 5 lakh

2 Surcharge @10% introduced for income between 50 lakh – 1 crore. Surcharge @15% remains in case of income above 1 crore

3 Set-off of loss under the head ‘Income from HP’ against income from other heads is restricted to INR 2 lakh. Same shall apply to companies also

4 Tax to be deducted @5% by Individuals & HUFs (not subjected to tax audit) in case rent being paid is Rs. 50,000 or more per month

5 Premature withdrawal from NPS scheme upto 25% of the contribution made by the subscriber shall not be taxable. This is over and above the tax-free limit of 40% of withdrawal at the time of retirement. Eg. – An employee has a corpus of Rs. 5 lakh (Rs. 2.5 lakh contributed by employee and employer each). The employee can now withdraw upto 25% of his own contribution (Rs. 62,500) without incurring a tax liability and the balance surplus of Rs. 4,37,500 ( Rs. 5,00,000 – 62,500) shall be tax free upto Rs. 1,75,000. Thus the total tax-free amount is now Rs. 2,37,500 as opposed to Rs. 2,00,000 (40% of 5 lakh) that would have been otherwise tax-free at the time of withdrawal of corpus at retirement

Experts' reaction on Union Budget 2016

Divyang Thakker

Vice President (Direct Tax) - Reliance Communications

In the backdrop of bold step of demonetizing the old currency notes, there was a substantial expectation build-up from the Budget, especially by the common man who anticipated raising of income-tax slabs as an acknowledgment to the support during demonetization phase. Though, the Finance Minister did not do that, the reduction of tax rate to 5 per cent in the first slab is a welcome step. Reduction of Corporate tax rate to 25 per cent for MSME seems to be in line with the promised objectives, despite the fact that the industry would have liked an across the board reduction to 25 per cent. Further, it is imperative that MAT may become redundant in view of reducing gap between the corporate tax rate and the effective MAT rate of close to 20 per cent. Abolition of FIPB is a step in right direction that will certainly improve the flow of FDI in India. Pushing of Fiscal deficit target of 3 per cent by one more year is like moving the goal post every year. Emphasis on farmers and rural infrastructure will provide impetus to employment, subject to proper implementation of policies. Sense has prevailed in restricting the provisions of Domestic Transfer Pricing only to cases where one of the entities in the transaction enjoys profit-linked deductions.

Fatema Hunaid

Partner, Grant Thornton India LLP

“The FM has announced limiting of domestic transfer pricing regulations to only those companies that are claiming any investment linked deductions. This comes as a major relief to scores of companies that were getting covered in the domestic transfer pricing provisions even though their domestic related party transactions are revenue neutral. This announcement now alleviates transfer pricing compliance obligations on companies. This also helps allocate the revenue’s time in auditing cases that would actually help in identifying cases where there could be an opportunity for claiming an undue tax advantage by over-invoicing to tax holiday units/ undertakings or under allocation of costs.”

Sanjay Tolia

Partner - Price Waterhouse

Quote 1: "On lines of BEPS Action Item 4, interest deduction proposed to be restricted to 30% of EBITDA in case of payment of interest to related party or even to unrelated parties, if the amount is guaranteed by AE. Exemption is provided for banking and insurance companies only at this point. It will be important to extend the exemption to companies requiring heavy investment or having long gestation period, such as infrastructure and utilities." Quote 2: "Doing business becomes easier, with domestic TP provisions now proposing to covering only tax holiday related transactions."

Bimal Tanna

Leader - Industrial Products, PwC

While a MAT rate cut and incentives for capex would have certainly boosted sentiments in the manufacturing sector in a big way, reduction in the income tax rate for MSME companies is quite encouraging and the thrust on rural and infrastructure development and affordable housing will benefit the manufacturing sector and stimulate growth in the economy.

Neel Ratan

Leader- Government and Public Sector, PwC

The launch of SWAYAM online platform with over 15oo courses and its tie-up with DTH channels is a welcome and much awaited move to take education to the masses instead of relying on physical infrastructure of schools and classrooms. The launch, alongside the additional fund allocation for Bharat Net, which will enhance the broadband connectivity. The indigenous platform will go a long way in bridging the digital divide in India and has the potential to emerge as the global paradigm in MOOCs.

Dr. Rana Mehta

Leader - Healthcare, PwC

"Basic healthcare information on a smart Aadhar card could be the first step as a Unique Health identifier for the country. This will be critical in identifying beneficiaries for the social healthcare insurance programmes being rolled out by the government." "A separate set of regulations for medical devices which are currently clubbed with drugs is long overdue. This will encourage further investment , innovation and bring down the cost to the patient "

Kuldip Kumar

Partner and Leader Personal Tax, PwC

Those falling in the income group of 50 lakh to 1 crore will end up shelling out more due to levy of surcharge of 10%. Rest of the taxpayers will have some saving due to reduction of tax slab rate from 10% to 5%. Limiting house property loss for adjustment against other income upto 2 lakh in a year would affect adversely to those who have rented out their house and their loss after adjusting mortgage interest is more than 2 lakh

Vikas Vasal

Partner & National Tax Leader, Grant Thornton

A pragmatic approach has been adopted to boost consumption and growth in the economy with focus on rural development, affordable housing and infrastructure. On tax front, the underlying theme has been to ensure consistency, bringing in clarity on contentious issues and widening the tax overall tax base.

Gautam Mehra

Leader Tax, PwC

The FM's commitment to stay with fiscal discipline while continuing with rural and infrastructure spending is a positive outcome. Honouring the Prime Minister's dream of housing for all, changes made for affordable housing sector by granting infrastructure status and relaxation in conditions for claiming tax incentive is welcomed. Other forms of reforms including certainty provided for overseas transfers for offshore funds investors should continue the flow of capital into the country, including continuing the lower 5% withholding tax rate for debt inflow. Reduction in tax rates for medium and small enterprises and middle class individuals should result in 'tax inclusion', which is important given the backdrop of demonetisation and the upcoming GST law. The intent of ease of doing business comes through in the form of domestic TP exemptions, abolition of FIPB, introduction of accountability on tax officers and reduction of timelines for scrutiny.

Ranen Banerjee

Leader Public Finance and Economics, PwC

I would call this a fiscally prudent reformist budget with realistic deficit target of 3.2%. The thrust is on ease of doing business, big push to rural infrastructure and highways and digital financial inclusion. Abolishing FIPB sends out a great message to investors. Corporate tax relief to SMEs with turnover of less than 50 crore to 25% would possibly also lead to better compliance. Bringing down the lowest slab personal income tax rate to 5% is likely to boost consumption.

Rakesh Nangia

Managing Partner, Nangia & Co

Reiterating that India remains in a bright spot in the world economy, the Finance Minister has done a careful balancing act in this budget. The fact that budget addresses most of the issues on expected lines becomes obvious once you look at the sedate way the markets gyrated during the entire budget speech. The key highlights of the budget would include the planned abolition of the FIPB. The roadmap for the same will be announced shortly and it will be interesting to see how FDI is further smoothened. The proposal to form a single integrated public sector oil major confirms the rumours that the Government may merge oil sectors PSUs to create a behemoth. The move could probably be taking into account the moves made in recent years by China. The acceptance of the SIT’s recommendations to ban transactions in excess of Rs. 3 lakhs will radically change the way India does business. Also, the proposed amendments in respect of the way political parties receive donations may also be a defining moment for Indian democracy. The relaxations on personal income tax while welcome could have been extended to more taxpayers, especially the salaried class. The reduction of tax rate to 25% for small companies having turnover of less than 50 crores will provide a major fillip to corporate structuring. Taking into account the troubles faced by the FPIs on account of the recent circular on the tax provisions regarding indirect transfers, the FM has exempted FPIs from this tax regime. This is an extremely welcome step that has nipped the dispute in the bud. The fine print will have to be looked into though to ensure that the amendment is retroactive in nature and not merely prospective. All in all, the Finance Minister has done a fine balancing act and addressed the major points of concern. The economic picture is being painted favourably by the Government despite the angst generated by demonetization – one expects this budget play its part in lifting the Indian economy onward and upward.

Abhishek Goenka

Partner – Tax & Regulatory Services, PwC

There was an expectation that the rate of MAT will be reduced in line with its goal of reducing the headline corporate tax rate to 25%. However, instead of that, the rate has been retained and a higher period of 15 years for carry forward for future credit claim has been provided, instead of the existing 10 year period. While this is welcome, a reduction in the rate should have been made.

Prateek Bhargava

CEO - MINDLER (www.mindler.com)

Welcome the budgets focus on Swayam! However the current version of the MHRD initiative is focused towards higher Education. The need is to focus towards leveraging technology at the school level. This would make quality education accessible to millions. The need of the hour is to focus on digital literacy given the focus towards digital India and also keeping in mind that India is one of the youngest democracy in the world. The start needs to be made at the school level to start bridging the skill gap between academia and industry. The focus of discussions needs to shift from “Reservations” to making “Quality Education" available to all. Given the digital revolution this is now a possibility and govt. needs to make adequate investments to equip large number of govt school to host technology enabled learning.

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