Budget 2016: Proposals affecting corporate sector
Tejas Desai March 2, 2016One of the commitments of the present Government when it came to power was to end tax terrorism and has since shown the intent to provide stability and consistency in tax policies. The thrust of this Budget's corporate tax proposals are well manifested in the Government's messages to tax payers over the past several months. Reduction in corporate tax rate, phase out of tax exemptions, focus on Make in India, measures to aid ease of doing business, reduction of litigation, road map towards implementation of BEPS Action Plans, were high in terms of expectations.
The Finance Minister's Budget speech today has focused on all of the above and more. A strong focus on the tax proposals was very visible from the structure of Part B of the budget speech which categorized the tax proposals into nine different pillars, something we haven't seen in the prior budgets.
For corporate India, the tax proposals pack a big punch. We take a look.
As regards reduction of the headline corporate tax rates, Finance Bill makes a beginning with small companies. Headline tax rate of 29 per cent is being proposed for small companies i.e., companies having gross receipt of less than Rs 5 crore during FY 2014-15. Further, to pave the way for new start-ups, tax rate of 25 per cent is being proposed for new companies engaged in manufacturing business.
Further, in line with announcements already made, certain tax incentives to start-ups are also being granted in form of exemption of 100 per cent of their profits for the initial three years (out of first five years) starting from the year of incorporation.
Again in line with expectations, a roadmap for, phase out of exemptions/weighted deductions has been charted out and various exemptions currently available under the Income tax Act will be phased out eventually by 2020.
The draconian dividend distribution tax on asset reconstruction companies is proposed to be removed; similarly the Government has responded to a long standing demand of the NBFC sector to allow deduction for provision of bad and doubtful debts. In order to incentivize domestic management of foreign funds, a significant condition relating to tax residency of the offshore fund has been rationalized. DDT on distributions to REITS has been removed, clarity has been provided on applicability of 10 per cent rate on capital gains tax on shares of private limited companies, clarifications already provided on inapplicability of MAT on foreign companies without any presence, have been codified.
With a view to settle the past litigation arising out of the retrospective amendments made by the Finance Act, 2012, the Budget proposes a one-time Dispute resolution by payment of tax arrears and offering waiver of penalty and interest.
The design of the penalty provisions, which have been largely untouched for several decades, have seen a fresh approach, which is largely a welcome provision.
The author is Tax Partner, EY India. Jigar Shah, Senior Tax Professional, EY, also contributed to the article. Views expressed are personal.