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Analysing tax announcements by FM Arun Jaitley in Budget 2015

Rahul Garg     March 1, 2015

HITS

  1. Reduction of rate of withholding tax on technology fee from 25 per cent to 10 per cent would make adoption and absorption of technology competitive both for setting up new industries and enhancing the efficiency of existing industry.
  2. Postponement of GAAR and cut-off date for investments to April 1, 2017 is taking away the uncertainty that businesses might have faced due to subjective nature of the GAAR provisions. It is expected that GAAR, when introduced in future, would be aligned to the international practice and protocol on the same.
  3. Pass through for investment funds and exclusion of capital gains and dividend income of FII settles the issue and, hopefully, the government would also give up ongoing litigation and proceedings on the same.
  4. Deduction in corporate tax rate and phasing out of the exemption in a planned manner clearly shows a move towards a more stable and matured tax regime.
  5. To incentivise and reduce the compliance burden of smaller businesses, transfer pricing threshold has been increased to Rs 20 crore and condition of employment of new workers for additional deduction has been rationalised to provide that addition of 50 workers would entitle such reduction.
MISSES
  1. Though the capital gain for sponsor on the REIT has been rationalised, the minimum alternate tax (MAT) on transfer of the project to SPV has not been excluded. This virtually negates the rationalised capital gain exemption.
  2. Removal of MAT on SEZ developers and SEZ units would have helped providing flip to setting up local manufacturing.
  3. Abolishing the tax computation and moving to profit-based taxation of business income would have simplified the tax regime as over 35 per cent of litigation is generated in applying the computational provisions.
  4. Given that large disputed tax demand is in arrear, a scheme to one-time settle the disputes by incentivising such settlement might have served the twin purpose of collecting the arrear tax demand and declogging the litigation system.
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(The author is Leader - Direct Tax, PwC India)

 


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