DIRECT

Income Tax

Proposal: The income tax rate is proposed to be reduced from 10 per cent to 5 per cent for up to a taxable income of Rs 5 lakh.

Impact: The decreased rate will enable maximum tax savings of Rs 14,806.

Proposal: The rebate available under Section 87A of Rs 5,000 (up to a taxable income of Rs 5 lakh) is proposed to be reduced to Rs 2,500 (up to a taxable income of Rs 3.5 lakh)

I: This will reduce the tax savings of Rs 2,575 for persons having taxable income up to Rs 5 lakh.

P: The surcharge rate of 10 per cent is proposed to be levied on individuals and HUF having taxable income between
Rs 50 lakh and Rs 1 crore.

I: This will increase the tax liability of individuals and HUF having income between Rs 50 lakh to Rs 1 crore.

P: It is proposed that immovable property would qualify as ‘long-term capital asset’ if held for more than 24 months.  The earlier limit was 36 months.

I: This may result in lower tax on sale of immovable property held for more than 24 months. Earlier, such sale of immovable property held for more than 24 months but less than 36 months were considered as short term capital gain and taxable at maximum marginal rates of 30 per cent (plus applicable surcharge and cess) for the person having income more than Rs 10 lakh. With the change, income from sale of immovable property held for 24 months or more is proposed to be considered as long term capital gain and taxed at the rate of 20 per cent (plus applicable surcharge and cess) after indexation benefit.

P: It is proposed to introduce a simplified one page income tax return form for salaried individuals having taxable income of up to Rs 5 lakh.

I: The proposal may result in increased compliances w.r.t filing of income tax returns.

P: It is proposed that no scrutiny assessment would be initiated for the individuals filing the income tax return for the first time and having the taxable income of up to Rs 5 lakh provided that no specific information is available with the tax department.

I: The proposal may result in widening the base of tax payers.

Corporate Tax

Proposal: Reduction in corporate income tax rates to 25 per cent from 30 per cent for small and medium companies having an annual turnover or gross receipts upto Rs 50 crore in financial year 2015-16
Impact: Almost 96 per cent of companies (according to FM speech) who have filed returns for financial year 2014-15 will get the benefit of lower taxation for return of income to be filed for financial year 2017-18. Will also provide encouragement for firms to migrate to corporate structure.

P: To allow carry forward of Minimum Alternate Tax (MAT) credit from 10 assessment years to 15 assessment years

I: Existing tax incentives available to companies are being phased out by the government and companies who has started claiming such incentives in recent years may be having MAT liability for the next 7-10 years. Hence, the extended period will allow the companies to utilise their MAT credit in additional 5 years once their eligibility period of incentives is over.

P: Rationalisation of MAT provisions in line with Indian Accounting Standards

I: Will provide much needed clarity in the mechanism of computation of book profits for companies who were mandatorily required to adopt IND-AS for financial year 2016-17 and will file their return of income in September 2017/November 2017.

P: Shift of base year from 1981 to 2001 for computation of capital gains for all class of assets

I: Taxpayers were facing difficulty in computing fair market value (FMV) for the year 1981 due to non-availability of relevant information w.r.t. capital assets acquired prior to the year 1981. This will reduce their hardships.

P: Exemption of long-term capital gains on sale of listed shares acquired through recognised stock exchange (on or after October 1, 2004) available only if securities transaction tax is paid both at the time of acquisition and sale of such shares subject to certain exemptions

I: May act as a deterrent to misuse the provision by persons having unaccounted money.

P: Purchase of immovable property at a value less than FMV (in excess of specified limit of Rs 50,000) will be subject to tax as other income in the hands of all taxpayers instead of only individuals and HUF

I: Proposed provision will plug the loophole and expand the anti-abuse provisions for all taxpayers which includes firm and company.

P: Profit linked incentives available to start-ups changed to 3 years out of 7 years (instead of 5 years) and conditions of continuous holding of 51 % of voting rights for carry forward of losses has been relaxed subject to the condition that the holding of the original promoters continues

I: It has been observed that start-ups generally requires time horizon of 3-5 years to make profits.  Extending the period for claim of incentives will facilitate start-ups to claim benefit of 3 years incentives when they become profitable.  The relaxation of restrictions on change of shareholding of start-ups will facilitate regular investments and will thereby easedoing business for start-upsin India.

 

INDIRECT

Service tax

Proposal: Service Tax Valuation Rules has been amended with retrospective effect from July 1, 2010 to provide for a mechanism to determine value of service portion in case of works contract involving transfer of goods and land or undivided share of land.

Impact: This amendment seeks to bring a parity in taxability of sale of under-construction flat, under the heads ‘works contract service’ and ‘construction of complex service’, from July 1, 2010 onwards, thus setting at rest various classification disputes raised by the department.

P: The one time upfront amount (called premium, salami, development charge etc) payable for grant of long term lease of industrial plot (30 years or more) by State Government Industrial Development Corporations/ undertaking to industrial unit has been exempted from service tax for the period from June 1, 2007 to September 9, 2016.

I: The amendment is likely to settle the ongoing dispute regarding applicability of service tax on lease premium charged by such corporations from June 1, 2007 onwards.

P: Authority established for advance ruling under central excise, service tax and customs has been merged with the authority for advance ruling established under Income Tax Act, 1961. Further, the time period to pronounce the ruling has been extended from ninety days to six months

I: Attempt to simplify and rationalise the procedure

Excise

Proposal: Increase in the rate of excise duty on pan masala, unmanufactured
tobacco and cigarettes

Impact: Increase in price of such items

P: Exemption from excise duty provided to Micro ATMs, mPOS card readers and Point of Sale devices, including parts & components thereof

I: Impact: Would reduce price of goods and encourage digitisation and cashless economy

Customs

Proposal: BCD and/or SAD reduced on fuels, chemical and petrochemical, renewable energy, IT hardware (POS card reader for m-POS, Micro ATM, finger print reader/scanner, etc.)

Impact: Would reduce cost and incentivise domestic value addition, promote cashless economy and ‘Make in India’  initiative

 

• Analysis by Dinesh Agarwal, partner, and Sidhartha Jain, partner, EY Tax & Regulatory Services