‘No-non­sense Bud­get’ will In­clude More in the Tax Net

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The Economic Times - - Companies: Pursuit Of Profit - Gau­tam Mehra

Bud­get 2017 cre­ated a his­tory of sorts — dis­con­tin­u­ing the colo­nial prac­tice preva­lent since 1924, the fi­nance min­is­ter, Arun Jait­ley, pre­sented a com­bined Union and Rail Bud­get on Fe­bru­ary1, 2017. At a macro level, one has to com­mend the out­come of a con­tained fis­cal deficit, with­out re­duc­ing the fo­cus on in­fra­struc­ture and ru­ral spend. Some key themes on the tax front are dis­cussed be­low.

Firstly, given that we are in the midst of the de­mon­eti­sa­tion ‘stick’ and the GST trig­ger, this Bud­get tac­ti­cally con­tains ‘ car­rots’ to nudge the large ma­jor­ity of those out­side the tax net, to come in. Mea­sures around re­duc­tion of the cor­po­rate tax rate from 30% to 25% to Medium and Small En­ter­prises hav­ing a turnover of .₹ 50 crore or less, halv­ing the tax rates for in­di­vid­u­als hav­ing in­come be­tween .₹ 2.5 lakh and .₹ 5 lakh, ex­emp­tion from scru­tiny to in­di­vid­u­als fil­ing re­turns for the first time hav­ing in­come be­low .₹ 5 lakh, are some of the thought­ful mea­sures in this re­gard.

Of course, there are also the ‘sticks’ of bar­ring pay­ments of .₹ 3 lakh or more through cash, and a re­duc­tion of the al­lowance limit for non-cash trans­ac­tions from .₹ 20,000 to .₹ 10,000.

Se­condly, keep­ing a watch­ful eye on in­flows into the coun­try, two im­por­tant changes have been made around eq­uity and debt in­flows. For­eign Port­fo­lio In­vestors have been ex­empted from the rigours of the in­di­rect trans­fer pro­vi­sions – this ne- gates the im­pact of the con­tro­ver­sial De­cem­ber Cir­cu­lar which was quickly kept in abeyance in the be­gin­ning of Jan­uary, though more needs to be done to al­lay con­cerns of some FPIs and most other fi­nan­cial in­vestors, in­clud­ing the im­por­tant pri­vate eq­uity cap­i­tal. A three year ex­ten­sion of the lib­eral 5% tax on in­ter­est paid on cross bor­der debt would be wel­comed by lenders and bor­row­ers alike, as also its ex­ten­sion to Masala Bonds.

Thirdly, one of the largest em­ploy­ment gen­er­a­tors – real es­tate – has rea­son to cheer. In line with the Prime Min­is­ter’s dream of ‘Hous­ing for All’, af­ford­able hous­ing has emerged as one ma­jor ben­e­fi­ciary of this Bud­get.

The pro­posal to grant ‘In­fra­struc­ture’ sta­tus to it would make it a ben­e­fi­ciary of a vol­ley of ben­e­fits, in­clud­ing lower bor­row­ing costs. Align­ment of the hold­ing pe­riod of im­mov­able prop­erty to un­listed eq­uity (2 years) and clar­ity around tax­a­bil­ity for joint de­vel­op­ment agree­ments are two other pos­i­tives, while a re­stric­tion of .₹ 2 lakh im­posed to house prop­erty tax loss set off will curb tax ben­e­fits that may have been availed in the past.

Fourthly, there is a say­ing ‘when it is not nec­es­sary to change, it is nec­es­sary not to change’. Con­cerns around in­her­i­tance tax, hold­ing pe­riod for listed shares, res­i­dency rules for in­di­vid­u­als had been do­ing the rounds, and a sta­tus quo ap­proach en­sures that th­ese neg­a­tives have not out­shined the larger good com­ing out through the Bud­get, though tax pay­ers in the .₹ 50 lakh to .₹ 1 crore bracket would have to shell out more tax.

Keep­ing in line with the global BEPS de­vel­op­ments, pro­vi­sions are be­ing in­tro­duced to re­strict in­ter­est de­ductibil­ity to 30% of EBITDA. Cer­tain other tax avoid­ance pro­vi­sions in­clude ex­pand­ing the net of the ‘gift tax’ pro­vi­sions and in­clud­ing trusts within the purview of the ad­di­tional tax payable by recipients on div­i­dends. The pro­posal to tax sale of car­bon cred­its at10% should put to rest in­ter­pre­ta­tions on this front.

The in­tent of ease of do­ing busi­ness has come through in the form of re­strict­ing do­mes­tic trans­fer pric­ing pro­vi­sions to cases where one of the par­ties in­volved en­joys profit-linked de­duc­tion, abo­li­tion of FIPB and re­duc­tion of time­lines for tax as­sess­ment. The com­ment on in­tro­duc­tion of ac­count­abil­ity on tax ad­min­is­tra­tors is a very sig­nif­i­cant one, but the devil would lie in the de­tail­ing and more im­por­tantly, the speed and qual­ity of im­ple­men­ta­tion.

One thing which needs a relook is the pro­posal to tax listed eq­uity gains where STT has not been paid at the time of ac­quir­ing such shares – in one sense, this could be viewed as a ret­ro­spec­tive ap­pli­ca­bil­ity of the law, a prin­ci­ple which this Gov­ern­ment has other­wise been very con­sis­tently stay­ing away from.

Over­all, it’s a ‘no-non­sense’ Bud­get in the right di­rec­tion, keep­ing in sight the gov­ern­ment’s aim of ‘Trans­form­ing, En­er­giz­ing and Cleans­ing’ In­dia. And for those who had any doubts on the last part, get ready for tax In­clu­sion. (Part­ner and Leader Tax

& Reg­u­la­tory, PwC)

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