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Budget proposal
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Grant Thornton view
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Flat income-tax rate of 25% for new manufacturing SMEs companies with no other exemptions: new manufacturing companies incorporated after 1 March 2016 will have an option to be taxed at 25% provided they do not claim other deductions or allowances.
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This is in line with the direction of phasing out exemptions and reducing Corporate tax rate to 25% announced in 2015 budget, and aligned to the governments Make in India initiative.
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Sunset Clauses rationalised: The Budget provides for sunset clauses for certain R&D activities and SEZ units ending March 2017 and 2020 respectively.
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Particularly for the SEZ units, the extension of the sunset clause for SEZ units is a relief since it gives adequate time for the zones and the units to consolidate.
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100% FDI in marketing of Indian food produce:This proposal will invite much needed investment into the food processing sector and make it competitive.
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This is a first step towards liberalisation of food retail sector. However, the modalities of the proposal may be clear only after clear guidelines are provided.
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Widening presumptive tax to simplify compliance: Presumptive taxation scheme already in existence has been given a fillip by increasing the turnover threshold for businesses from Rs 10 mn to Rs 20 mn with a presumptive taxable income of 8% and increasing gross receipt thresholds for professionals to Rs 5mn rupees with the presumption taxable income of 50%.
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Widens the base for small businesses to provide ease of doing business and reduces the compliance burden.
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Provisions relating to Place of Effective Management (POEM): The budget provides for deferring the date of implementation by a year.
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Given the lack of clarity on the implementation of POEM coupled with the delay in circulating the guiding principles for public comment, this is a pragmatic move.
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Making tax officers more accountable: interest at the rate of 9% against 6% p.a in case there is delay in giving effect to an appellate order beyond ninety days. Tax officers who cause delay accountable for this loss to Government.
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Provision such as these make tax authorities accountable and initiate a mind-set change to public servants that will go a long away in addressing the reduction of “tax terrorism” in the regime.
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DDT exemption to SPVs of REITs: Distributions made out of income of asset owning SPV to Listed Real Estate or Infra Investment Trusts (REITs & INVITs) will not be subjected to Dividend Distribution Tax.
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Sets the stage for REITs to finally become a reality in India which will benefit liquidity for income generating real estate asset companies- commercial property, retail and the like, and investors to enter this asset class without the need to owning the physical asset.
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Expansion of scope of the CENVAT credit rules: CENVAT credit rules revised by expanding the input and input service definitions.
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Liberalisation of the current credit regime is in line with the overall spirit of GST
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Amnesty scheme: a limited period compliance window for domestic taxpayers to declare undisclosed income by paying a total of 45% of the undisclosed income with immunity.
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This compares to a 60% rate on overseas undisclosed assets under the similar window that was available before the Black Money Act became effective last 30 Sept. If this window extends to overseas assets, it will be a bold step which should yield substantial results, whilst also be open to criticism.
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