The budget presented in the backdrop of the proposed Direct Taxes Code Bill, 2010 and the goods and services tax seems to suggest no major tax changes for India Inc, and tries to bring in amendments aligning to these forthcoming legislations.
The basic corporate tax rate remains unchanged but India Inc can cheer about the marginal reduction in surcharge from 7.5 per cent to 5 per cent for domestic firms and from 2.5 per cent to 2 per cent for foreign companies. The education cess of 3 per cent continues.
A welcome relief is the taxation of dividends received by an Indian company from its foreign subsidiary (more than half of the nominal value of equity shares) at 15 per cent. This will encourage Indian Inc to repatriate overseas profits back to India. This section contains a rigour prohibiting deduction of expenses against such dividend income whose import is not clear and could create issues for debt funded acquisitions.
To augment long-term overseas low-cost funds for infrastructure, a concessional tax rate of 5 per cent has been provided with respect to interest income of non-resident investors from specified core debt funds set up in India.
The minimum alternate tax (MAT) on book profits for corporate houses is raised to 18.5 per cent from 18 per cent and its applicability extended to special economic zones (SEZ) developers and exports profits of SEZ units.
The levy of dividend distribution tax (DDT) also stands extended to SEZ corporate developers from June 1. The levies in line with the DTC dilute the incentives to develop SEZ or set up units.
An alternate minimum tax (AMT) has been introduced on limited liability partnerships at 18.5 per cent on adjusted total income (not book profits but taxable income before tax holidays). Credit of AMTs for carry forward and set-off in forthcoming 10 years is in line with MAT provisions. This levy is likely to impact conversion of partnership firm and private firms into LLP.
Another welcome measure is the introduction of investment-linked incentives (i.e. 100 per cent deduction of capital expenditure, excluding land, goodwill and financial instrument) to production of fertilisers in India and the development and building of housing projects under a scheme of affordable housing framed by the Central/state governments and notified by the board.
The employers contribution to an approved pension scheme of central government will now be allowed in computing business profits only to the extent it does not exceed 10 per cent of the salary.