Capital gain exemption proposed for investment in start-up
Corporate tax reduced to 29% for small business having turnover less than 5 crores
Relief under Section 87A proposed to be increased from Rs. 2,000 to Rs. 5,000
No higher withholding tax if non-resident does not have PAN but furnishes an alternative document
FM proposes to amend Section 14A; disallowance under Sec. 14A should not increase the actual expenditure
Surcharge raised from 12% to 15% on incomes above 1 Crore
Reduction in corporate tax - New manufacturing companies after March 1, 2016 have to pay tax at 25%
Presumptive taxation scheme introduced for all professionals with receipts up to Rs. 50 lakhs.
FM increases the turnover limit of presumptive taxation Scheme to 2 crores
Exemption from Section 206AA shall be extended to non-resident for other specified
TCS at 1% in case of sale of goods or services in case, if value thereof exceeds
Rs. 2 lakh
TCS at 1% in case of sale of Motor vehicle, if value thereof exceeds Rs.10 lakh
Self-declaration under Form 15G/15H has been extended to Section 194-I even if payment
of rent exceeds Rs. 1,80,000.
Rate of TDS has been reduced in various provisions
Threshold limits for providing relief to payer from withholding of tax have been
increased in various provisions
Corporate tax rate of 25% has been proposed for newly set-up manufacturing companies
(incorporated on or after 01.03.2016)
Another provision proposed to be inserted to exempt long-term capital gains of up
to Rs. 50 lakhs for investment in units of funds set up by Govt.
Capital gain exemption has been proposed for start-ups if long term capital gains
from transfer of house property is invested in shares of start-up
100% deduction of profits shall be available only to start-ups setup before 01.04.2019
Proposal has been made to provide a deduction of 100% of the profits derived by
an eligible start-up for 3 out consecutive AY out of 5 years
of Rs 1.03 trillion for construction of national highways. The
higher spending on national highway projects will spur sales of construction trucks.
to the Motor Vehicle Act allowing greater private participation in passenger
focus on Rural Sector such as thrust on irrigation projects, increase in farm
credit (by Rs 500 billion) to Rs 9 trillion, an 11% increase in allocation to
MGNREGA and extension of interest rate subvention to farmers shall increase
rural demand for vehicles.
Key tax proposals
Rationalisation of provisions on
Investment Allowance - Existing provision of section 32AC of the Act provides for
investment allowance for a company engaged in manufacturing or production of
any article or thing subject to the condition that the acquisition and installation has to be done in the same financial year.
The dual condition of acquisition and installation causes
genuine hardship in cases in which assets having been acquired could not be
installed in same financial year. It is proposed to amend the section 32AC to
extend the benefit of the said section in a case where acquisition of the plant
& machinery (of the specified value) has been made in preceding year,
however, installation is done on or before 31.03.2017. Also, it is provided
that in such a case deduction under this sub-section shall be allowed in the
year of installation.
Collection of tax at source on
Vehicle Sales:To curtail cash transactions and to curb flow of unaccounted
money and to get information on high value transactions, it is proposed that
seller shall at the time of sale of motor vehicles exceeding ten lakhs collect
the tax at the rate of 1%. The conditions for exemption for buyers will be
prescribed. The proposal will be effective from 01 June 2016.
from Duties on Hybrid vehicles
- Exemption from BCD and lower rate of CVD, i.e. 6%, on specified components
required to manufacture electrically operated vehicles and hybrid vehicles
extended for an indefinite period and extended to include ‘Engine for all
Hybrid Electric Vehicle’
in custom duty on Golf Cars
- BCD on Golf Cars has been increased from 10% to 60%.
of Infrastructure cess
- Infrastructure cess at the rate varying between 1% to 3% imposed on motor
vehicles depending upon length and engine capacity.
MRP based assessment applicable to parts, components and assemblies of motor
vehicles extended to accessories of such motor vehicles as well.
setup domestic company engaged solely in the business of manufacture or
production of article or thing, may opt to pay tax at the rate of 25% from
assessment year 2017-18 onwards subject to the following conditions:
has been setup and registered on or after 1st day of March, 2016;
computing its total income it does not claim any benefit under SEZ Scheme,
benefit of accelerated depreciation, benefit of additional depreciation,
investment allowance, expenditure on scientific research and other specified
deductions under Chapter-VI-A; and
communicates the choice of this option to the Tax Authorities in the prescribed
manner before the due date of furnishing of income.
out of weighted deductions:
In line with the stated objective of reducing the tax rates together with
reducing the exemptions available, the phase out plan has been proposed for
certain profit linked/ weighted deductions. It is proposed to phase out tax
incentives relevant to infrastructure sector as follows:
currently available in the IT Act
phase out measures
Section 10AA- Special provision in respect of newly established units in Special
economic zones (SEZ).
Profit linked deductions for units in SEZ for
profit derived from export of articles or things or services
No deduction shall be available to units
commencing manufacture/production or providing services on or after 1st
32 read with Rule 5 of Income-tax Rules, 1962 – Accelerated Depreciation
depreciation is provided to certain Industrial sectors
to 40% w.e.f 1st April 2017 (i.e. previous year 2017-18).
Section 35(1)(ii) -Expenditureon scientificresearch
previous year 2017-18 to 2019-20 and100%from
previous year 2020-21 onwards
Section 35(1)(iia)/(iii)- Expenditure
previous year 2017-18 onwards)
35(2AA/(2AB) -Expenditureon scientificresearch
Restricted to 150%fromprevious year 2017-18 to
2019-20 andto 100%fromprevious year
Section 35AD - Deductioninrespectofspecifiedbusiness
such as cold chain facility, warehousing
facility for storage of agricultural produce, affordable housing project,
production of fertiliser and hospital
Weighted deduction of 150%
Restrictedto100% of capitalexpenditure from previous year 2017-18 onwards
Allowance – Relaxation
a manufacturing company is allowed a deduction of 15% of actual cost of new
plant and machinery, if it exceeds INR 25 crores, provided the year of
acquisition and installation, both are the same.
put an end to this dual condition, it has been proposed to provide this
deduction, even if the year of acquisition of the assets is different from
their installation – in which case, the deduction shall be allowed in the year
the present provisions, a taxpayer engaged in manufacture of goods in a factory
is allowed a tax incentive on employment of additional workmen.
is proposed to extend the said incentive to all the sectors, and to relax some
of the conditions subject to which the said tax benefit is available, such as:
of min. number of days of employment in an year from 300 days to 240 days
of condition of 10% increase in number of employees every year
of a minimum of 100 persons
deduction shall be available in respect of employees whose entire EPS
contribution is paid by the Government, or whose total emoluments are in excess
of INR 25,000 per month.
of customs and excise duty structure on raw-material/ inputs/components/capital
in order to dissuade imports of finished goods and promote domestic
manufacturing in light of the government sponsored ‘Make in India’ scheme.
amendment to clarify that exemption from safeguard duty was/is available on
imports under the Advance License and Duty Free Import Authorization Schemes
Energy Cess (renamed as Clean Environment Cess) applicable on coal, lignite and
peat increased from INR 300 per tonne to INR 400 per tonne effective
in total number of returns to be filed by a manufacturer and the facility of
revising the return has been extended to manufacturers as well.
Credit Rules substantially amended and rationalized to simplify the credit flow
for manufacturing sector including reversal required to be made in case of
goods installed outside the factory used for pumping of water, for captive use
in the factory, would now be eligible for Cenvat credit.
of Cenvat credit allowed in the first year for capital goods of value upto INR
10,000 per piece.
of Cenvat credit extended to tools when intended to be used in the premises of
job-worker or contract manufacturer
Modernization of land records and
integrated land information management system is proposed under Digital India
Initiative and will be implemented as a Central sector scheme with effect from
1st April, 2016. This would help in readily providing information about the
title of land, disputes on such land, etc.
Thrust to ‘Affordable Housing’
for all. 100% tax deduction to developers meeting criterion proposed.
of REIT’s -
Presently a comprehensive regime for taxation of Real Estate Investment Trust (“REIT”) is in place. REITs own shares
in Special Purpose Vehicle (“SPV”)
owning real estate assets. In case of an SPV being a company it is obligated to
pay normal corporate tax as well as Dividend Distribution Tax (‘DDT’) on distribution of dividend to
the REIT. It is proposed to rationalize the taxation regime for REIT’s and
their investors as under:
made by SPV to the Business Trust out of current income are proposed to be
exempted from levy of DDT;
received by the Business Trust and its investor shall not be taxable in the
exemption from levy of DDT would only be in the cases where the Business Trust
either holds 100% of the share capital of the SPV or holds all of the share
capital other than that which is required to be held by any other entity as
part of any direction of any Government or specific requirement of any law to
this effect or which is held by Government or Government bodies; and
exemption from the levy of DDT would only be in respect of dividends paid out
of current income after the date when the Business Trust acquired the
shareholding in the SPV. The dividends paid out of accumulated and current
profits up to such date shall be liable for levy of DDT as and when any
dividend out of such profits is distributed.
amendment will take effect from June 1, 2016.
to small tax payers in relation to housing-
interest deductions available on loans taken for acquisition/ construction of
property were available if such acquisition/ construction was completed within
three years from the end of the financial year (“FY”) in which the loan was borrowed. Such time limit for
acquisition/ construction has been extended to five years in view of
considerable delay by builders in completing the housing projects. The
amendment is proposed to take effect from April 01, 2017, i.e. from AY 2017-18.
is proposed to amend Section 80EE of the IT Act to provide additional deduction
to individuals in respect of interest payable on housing loan for acquisition
of residential property, to the extent of ? 50,000, subject to certain
conditions. The amendment is proposed to take effect from April 01, 2017, i.e.
from Assessment Year (“AY”) 2017-18.
of section 50C in a case sale consideration is fixed under agreement executed
prior to date of registration - Section
50C of the Act provides for mechanism for determining value of land or building
or both for determining the capital gains on their transfer. Ambiguity
prevailed as to the date where the date of agreement and date of registration
of such land or building or both were not same. It has been proposed to provide
that stamp duty value on the date of agreement may be taken for the purpose of
computing the full value of consideration.
for promoting affordable housing (section 80-IBA) - With a view to incentivize
affordable housing sector and in order to meet a larger objective of “Housing
for all by 2022”, the Finance Minister has proposed to provide 100% deduction
of profits to an assessee engaged in developing and building affordable housing
projects subject to certain conditions, which inter alia, provides:
housing project is to be approved by competent authority before 31st March
project is completed within a period of 3 years from the date of approval;
area of the shops and other commercial establishments included in the housing
project does not exceed 3% of the aggregate built-up area
is on a plot of land measuring not less than 1,000 sq mtrs where such project
is located within the cities of Delhi, Mumbai, Chennai and Kolkata or within
the area of 25 kms from the municipal limits of these cities or 2,000 sq mtrs.
within the jurisdiction of any other municipality or cantonment board;
units comprised in the housing project does not exceed 30 sq. mtrs where such
project is located within the cities of Delhi, Mumbai, Chennai and Kolkata or
within the area of 25 kms from the municipal limits of these cities or 60 sq
mtrs., where such project is located within the jurisdiction of any other
municipality or cantonment board;
a residential unit is allotted to an individual, no such unit shall be allotted
to him or any other member of the family, etc.
amendment will be effective from 1st April 2017.
of provisions in respect of unrealised rent and arrears of rent - Existing provisions of
sections 25A, 25AA and 25B of the Act relate to special provisions on taxation
of unrealised rent, allowed as deduction realised subsequently, unrealised rent
received subsequently and arrears of rent respectively. It is proposed to
insert a single section 25A to provide that amount of rent received in arrears
or amount of unrealised rent received subsequently shall be chargeable to tax
in the financial year in which such rent is received or realized. It has also
been proposed to provide 30% of such amount as a standard deduction.
from excise duty available to ‘Concrete Mix’ extended to ‘Ready Mix Concrete’
manufactured at the site of construction for use in construction work.
services provided to a government, local authority or a governmental authority
by way of construction, erection, commissioning, installation, completion,
fitting out, repair, maintenance, renovation, or alteration in relation to
non-commercial buildings, educational and cultural establishments and specified
residential complexes have been exempted retrospectively with effect from March
01, 2015 till April 01, 2020.
services by way of construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation, or alteration of
original works pertaining to affordable housing under various Government
schemes has been exempted from levy of service tax with effect from March 01,
rate for “construction of complex services” rationalized at 75% of the value of
such service subject to non-availment of Cenvat Credit on inputs and inclusion
of value of land in the amount charged from the service receiver.
Dialysis Services Programme to be started under National Health Mission through
health protection scheme will be cover 1/3rd of India’s population to provide
health cover up to INR 100,000 per family. For senior citizens an additional
top-up package up to INR 30,000
boost supply of quality medicines at affordable prices, 3,000 stores under
Prime Minister’s Jan AushadhiYojana will be opened during FY 2016-17 for supply
of generic drugs
Key Tax proposals
out of weighted deductions:
In line with the stated objective of reducing the tax rates together with
reducing the exemptions available, the phase out plan has been proposed for
certain profit linked/ weighted deductions. Weighted deduction of 200%
available for in-house scientific R&D in Section 35(2AB) is proposed to be
limited to 150% from FY 2017-18 to FY 2019-20 and 100% thereafter. Restrictions
also imposed on other deductions available for expenditure on scientific research
from FY 2016-17 onwards.
tax on Royalty for Indian patent holder: Vide a new section 115BBF it is
proposed that royalty received by an eligible assesse in respect of a patent
developed and registered in India shall be taxable at the rate of 10% (plus
applicable surcharge and cess) on the gross basis. No expenditure or allowance
in respect of such royalty income shall be allowed under the Act. Such income
and corresponding expenditure shall also not form part of MAT computation of
the eligible assesse.
A person resident in India, who is the true and
first inventor of the invention and whose name is entered on the patent
register as the patentee in accordance with Patents Act, 1970 shall be regarded
as ‘eligible assessee’ and where more than one person is registered as patentee
under Patents Act, 1970 in respect of the patent every such person shall, be
regarded as eligible assessee.
from Excise Duty:
With effect from March 01, 2016, disposable sterlized dialyzer and micro
barrier of artificial kidney exempted from excise duty.
The budget is distinct in style and content from the norm.The NINE pillars in the speech and the NINE thrusts to Tax Reforms in the content indicate a strong push on investment in infrastructure and rural areas which should infuse substantial funds in the right direction within the economy. The government has focussed on job creation through incentivising the human intervention rather than capex that until now was the other way round – a dichotomy in our country where capital is scarce and labour is abundant. Hopefully this signals a new thinking which is welcome. We hope the States also follow suit. Focussed efforts on reining in black money, the proposal to initiate another amnesty scheme, making tax officers accountable, digitising land records and other such digital initiatives will serve to reduce black money and bring hitherto invisible funds into the mainstream. This should further add to the India’s GDP growth.
The FM has juggled with several pain points fairly well. An overall positive budget, focusing on the core sectors namely agriculture, rural investment keeping in mind fiscal consolidation. Continued focus on Skill Development and livelihood creation through increased allocation for MNREGA, PM Kaushal Vikas Yojna and strengthening the Digital India agenda is welcome. The budget is much in sync with the economic survey but there could have been more for India Inc.
In the midst of the global slowdown and turbulence coupled with the beaten-up Financial markets, the Finance Minister has been able to present a pragmatic and well balanced budget rightly focusing on core sectors. Choosing to stick with FRBM target of 3.5% fiscal deficit is laudable. It was comforting to observe no change in two most discussed issues during pre-budget week, tinkering of capital gain tax regime and increase in the service tax rate. Budget has proposed noteworthy steps for reducing tax litigation and promoting affordable housing. This budget is rightly an onset to the long term expedition for a pensioned society and use of technology for interface between tax department and tax payer. As expected, the budget provides fillip to the start-ups be introduction of tax holidays. Deferral of POEM by a year a welcome move, but it would have been constructive if the deferral was till April 2017.
However, on reduction in the corporate tax rate, much was expected than what is done. No mention on GST roadmap and completely missing the disinvestment targets were big dampener. Bringing dividend to tax in the hands of recipient, though only for super rich, would result in double taxation of the same income. Plethora of cesses would further complicate the intricate tax structure. Urban middle class, which had maximum contributed to the GDP growth, does not seem to be benefited much from the budget.
To summarize, amidst huge industry expectation, the Budget on one hand deserves lot of applause but at the same time fails on certain expected parameters. Now, the focus shifts on implementation.
The Finance Minister rose to present his third budget by stating that the global economy is weak but India has done well. With a fiscal deficit target of not exceeding 3.5% as budgeted, the Finance Minister surely seems to have done his bit to make it happen.
The Finance Minister very clearly seems to have focused on empowering the ‘Make In India’ initiative by removing customs and excise duty exemptions on a variety of goods. The thrust seems to be more on electronics, hardware and the infrastructure industry where duty exemption has been provided to imported parts and components for manufacture of chargers/adapters, speakers (to be used for manufacture of mobile phones), parts &components for use manufacture of routers, broadband modems, set-top boxes, DVRs, CCTV cameras etc. These exemptions are available only when the companies import such items for their actual use since direct import of these items (without the importer actually using such imported goods) has been made taxable on import.
Prolonged litigation seems to have taken a toll on Government’s administration machinery and this seems to be corrected by proposing a one-time Dispute Resolution Scheme allowing the tax payer to settle the tax dispute pending with the first appellate authority.
The Budget also seems to encourage ‘export of goods’ by not only announcing a widening of the duty drawback schemesbut also providing a retrospective amendment to allow refund of input service tax credit on services used beyond the factory gate for manufacture of goods subsequently exported out of India. This is a welcome measure considering the retrospective amendments are generally towards garnering tax rather than allowing tax benefits.
A great push has also been made to affordable housing sector by way of exempting service tax on construction projects involving small dwelling units and also exempting the concrete mix manufactured at site from 12.5% excise duty. This is surely going to reduce the tax burden on the sector, making cash bled housing sector a slight fillip.
The much-needed demand for reducing interest rate on delayed payment of customs & excise duty and service tax seems to have found a favourby the Finance Minister with the rate getting reduced from 18% to 15% subject to few conditions.
On the aspects of ease of doing business that has been one of the mantras of Mr. NarendraModi to the investors, few measures seem to be visible on a first look of the Finance Bill. Increase in monetary limits for prosecution, restricting the situations for arrest of defaulting taxpayers and introducing the provisions for deferred payment of customs duties for certain classes of importers and exporters seem to be a welcome measure.
Overall, the Budget seems to be quite populist with a larger focus on creating value addition in India, remove cascading effect by streamlining credit mechanism and create a conducive environment for doing business with ease.
My first cut reaction is that this is a good Budget giving focus on 9 Pillars which include focus on Infra, rural areas, relief to small tax payers, creating ease of doing business, affordable housing and so on and so forth. Fiscal deficit has been proposed to keep at 3.5% which is a big positive without compromising development agenda.
On Taxation front, there are simplification and rationalisation measures, introducing presumptive taxation for small and medium tax payers. Keeping in line with objective of unearthing black money, the FM has proposed to introduce Domestic black mint by laying 30% tax, 7.5% surcharge and 7.5% penalty thus totalling 45% to be operational from June 1, 2016 to Sept 30, 2016 in a manner that tax will be paid within 2 months of declaration. Numbers of measures have been introduced for reducing tax litigation. Most recommendations of Tax reforms administration report and Easwar Committee have been accepted - this is a good simplification and rationalisation measures.
On capital market front, additional tax on dividend has been introduced at 10% in addition to DDT if dividend income exceeds Rs.10 lacs. Short term capital gains tax period for non-listed companies has been reduced from 3 years to 2 years - the FM was silent on listed companies.
Corporate tax rate has been reduced from 30% to 29% in restricted cases thus the path to reducing tax rate and also corresponding incentives will need to be examined in detail.
3 year tax holiday has been introduced for startups with keeping Minimum alternate tax leviable. Introducing 10% tax on patent companies is a big boost for IPR related companies and it looks like it is in line with country like UK.
On international taxation, Base Erosion and Profit Shifting measures including Country by Country regime. Also the FM made a declaration to resolve retro taxation by paying tax and no interest and penalty. Deferring POEM by a year is a good measure. GAAR will be introduced by 01/04/2017 as proposed last year. This looks like a big measure to create certainly, predictability and non-adversarial tax regime and create ease of doing business in India.
Overall, on tax front there are good rationalisation measures on both direct and indirect taxation. Also there are good 9 Pillars of FM'a speech which should take India to an increased growth story soon.
It is welcome that Duty drawback schemes will be widened, to give impetus to sagging exports. But emphasis shall also be on fine tuning the existing schemes and promote transparency. Budget outlay of more than 2 lakh crore in infrastructure sector, would fuel economic activity and kicky start the economy. The budget outlays for infrastructure sector would help the cement and steel industry to improve their performance. Service tax on spectrum fees will increase the cost of providing telecom services, and will hit telecom companies and the quality of service.
The Budget has taken a step forward in rationalizing the tax regime through sunset provisions for certain exemptions and deductions. It will also give a boost to manufacturing and to SMEs through the reduction in tax rates. Startups will be encouraged by the 3-year tax holiday and capital gains exemption for investors.
The special patent regime is an innovative idea and will encourage indigenous research and development.
The rules for place of effective management have been deferred by one year in response to representations by stakeholders. This will give time to companies to make adjustments to align with the rules.
The proposals such as stay of demand, easing of TDS requirements, the alternative facility for non-residents who do not have PAN, the procedure for e-assessment and time limits for passing effect orders will facilitate a taxpayer-friendly environment and in turn the objective of ease of doing business.”
There were enormous expectations from the Finance Minister as this is their 3rd budget. Announcements regarding GST were expected, however there was no commitment of a date for GST introduction in the Finance Minister’s speech apart from a mention that focus would be to introduce it at the earliest.
Introduction of 12 new benches of the CESTAT should help in reducing the congestion currently existing in the litigation system. However, levy of new Krishi Kalyan Cess of 0.50% on all services, though creditable, is a setback as it would increase the cost of services. This cess would have an impact on all aspects of the economy, since all taxable services will attract this cess. Further, levying and reporting service tax would be more complex as service tax and Krishi Kalyan cess would be creditable but Swachh Bharat cess would not be.
Overall, it’s a budget with some reform but it leaves us with an expectation that more could have been done
In the backdrop of make in India initiative, the manufacturers have been spared the rate increase, except in a few sectors like automobile and Tobacco. Rate increase has been spared for service providers too, but for the levy of Krishi Kalyan Cess for which input tax credit would be available.
Rate structure rationalization of customs and excise duties for specific sectors such as information technology, capital goods would address the inverted duty structures faced by some of these industries. Housing gets a boost with relief from service tax and exemption from excise duties on ready mix concrete for affordable housing programs.
The dispute resolution scheme rightly targeted at appellate level would benefit litigation reduction for those taxpayers who did not take the benefit of lower penalties at earlier stages of dispute or those tax payers with smaller demands who are no longer required to pay penalties.
Simplification and rationalization of CENVAT credit was long due with provisions relating to apportionment of credit between exempt and taxable services clearly found wanting. Improving the flow of credit, reducing compliance burden would help all tax payers. Input credit distribution form a common warehouse would help multi locational manufacturers.
Deferred payment of customs duties would help accredited importers to release cargo before payment of duty, thus reducing dwell time and bring down transaction costs.
Budget 2016, an incremental move in the backdrop of global uncertainty. Maintaining a fiscal deficit of 3.5% a very credible step for the financial markets, robust outlays for infrastructure, agriculture, rural and socio economic schemes, however, one can argue that more could be provided for recapitalization of Banks. No change in capital gains tax regime for listed stocks a positive for the stock exchange, however an additional tax 10% on dividends in excess of 10 lakhs and increase in STT on options a dampener for the markets. No change in individual slabs, POEM deferral, GARR confirmation, Action point on BEPS master file and country by country report, road map to reduction to lower tax rates and phase out of exemptions along expected lines. Introduction of Amnesty scheme can be questioned. Further, many provisions to build confidence with the tax payers with a view to reduce litigations and commitment to no retrospective amendment. All in all, in the backdrop of the prevailing global scenario, Budget 2016 a good pragmatic balancing acts.
1. Maintaining the fiscal deficit of 3.5% a credible signal to the global investors and good news for the bonds markets.
2. Higher allocations to rural programs such as MNREGA, Swach Bharat etc, a big flip to Rural demand.
3. Budget 2016 Focus on nine pillars of growth, a pragmatic approach to inclusive growth.