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Direct Tax

Proposed DDT on individuals is duplicity of tax

In a scenario, where the economic environment is not easy and fiscal constraints are stringent, one expected tough measures. On the other hand, the recent initiatives of ‘Make in India’, ‘Start-up India Stand up India’, provided one with the expectation of fiscal incentives to support investments in targeted sectors.

The Budget allocations towards rural upliftment, infrastructure development and emphasis on social sector are in line with the stated objectives of the government. However, on the corporate tax proposals, there are areas of disappointment. The Budget reflects a tightrope walk and a precarious balance of measures. 

At the outset, the promise made last year on reduction of corporate tax rates has been largely left unfulfilled, with the reduction in rates being restricted to small companies and new ventures. The ‘Make in India’ initiative does not seem to have received any substantial fiscal incentive, except marginally to the extent of the beneficial tax rate of 25% for new companies. Even this benefit is diluted by the capping of existing incentives such as accelerated depreciation to 40%, R&D expenditure to 150% and progressively to 100%.

Given the volatile state of the capital markets, the Finance Minister has decided to treat them with kid gloves. Though STT on options has been increased, dividend tax at 10% has been introduced for recipients (Individuals, HUFs and Firms) of dividends in excess of Rs 10 lakh. This in fact represents a duplicity of tax as Dividend Distribution Tax continues to remain applicable.

An Income Declaration Scheme has been introduced to enable persons who have not paid full taxes in the past to declare the undisclosed income,  and pay a one time tax of 45%. Such declaration shall provide immunity from Wealth tax and prosecution under various related Acts. This scheme has surprised many, as the government has, in the past, declared that it was against introduction of any such amnesty schemes. The financial sector has received some support from the Finance Minister by according a pass-through status to Asset Reconstruction Companies.

There have been some proposals to achieve tax simplification and reduce litigation,  which are steps in the right direction. The proposal to delay the implementation of PoEM,  and commitment against retrospective tax will enable many to heave a sigh of relief.

Overall, the Budget proposals show positive intent and focus in many areas but they also fall short of potential in many others. In a nutshell, almost there….but not quite!

This article was published in the Deccan Herald.