Amidst heavy D-street speculations, the FM in a subtle manner unfolded the long term capital gains tax story.
Ritika Loganey Gupta
The government’s philanthropic vision demonstrates the strategy of moving from ‘Ease of Doing Business’ to ‘Ease of Living’. Given this vision, the last pre-poll Budget, focusses on agriculture, rural development, infrastructure, MSME and health reforms with path-breaking initiatives including the world’s largest healthcare program with approx. 50 crore beneficiaries.
To make Indian businesses globally competitive, especially after recently introduced US tax reforms, the FM has taken the plunge to extend reduced corporate tax rate of 25 percent to companies with reported turnover of upto Rs 250 crore in Financial Year 2016-17, thus giving impetus to MSME enterprises which account for almost 99 percent of companies filing income tax returns. However, the benefit of lower corporate tax rate is curtailed by increased cess rate from 3 percent to 4 percent.
Amidst heavy D-street speculations, the FM in a subtle manner unfolded the Long Term Capital Gains tax story. Acknowledging that the equity market is already mature & buoyant, provision to levy tax on Long Term Capital Gains exceeding Rs 1 lakh at the rate of 10 percent, without allowing any indexation benefit has been proposed. However, all gains up to January, 31, 2018 will be grandfathered. Additionally, distribution of dividend by equity oriented mutual fund would be subject to dividend distribution tax of 10%. After the initial hara-kiri on the proposal, the stock market gained its foothold showing signs of recovery, absorbing the not so draconian change in the law as anticipated. The best part being that no retrospective amendments have been proposed.
Currently, governments and banks across the world are grappling with how to deal with cryptocurrencies, such as bitcoin. Some of the dangers cited are to do with privacy, security and volatility in price. Keeping this in mind, cryptocurrencies have been termed as illegitimate to secure the Indian economy. However, government would continue to explore proactive use of blockchain technology for ushering in digital economy.
As a measure to stimulate growth and make Startup India initiative more effective, definition of eligible startups has been expanded to cover improvements of products or processes or services or a scalable business models with high potential of employment generation or wealth creation. Also, 100% profit linked deduction extended to entities incorporated before 1 April 2021 from the earlier date of 1 April 2019, leaving the window open for entrepreneurial minds to set up their shops.
For effectiveness of the Insolvency and Bankruptcy Code 2016, which overrides other existing laws on matters pertaining to Insolvency and Bankruptcy, provisions relating to Minimum Alternate Tax (MAT) have been rationalised to provide reduction in book profits for aggregate amount of unabsorbed depreciation and brought forward losses, subject to admission of application by Adjudicating Authority.
Supporting the government’s mission of embracing technology and to bring greater transparency efficiency and accountability in the government’s functionary, enabling provisions will be introduced in the existing law for new scheme of electronic assessment. This will help eliminate interface between the authorities and tax payer, optimising utilisation of resources through economies of scale and functional specialisation and introducing a team-based assessment with dynamic jurisdiction
Pursuant to Organization for Economic Co-operation and Development (OECD) BEPS Action Plan 1, rules have now been proposed in domestic laws to provide that 'significant economic presence' in India will also constitute 'business connection'. ‘Significant economic presence’ has wide coverage including provision of download of data or software in India and systematic and continuous soliciting of business activities subject to certain conditions. Tax Treaty provisions to the extent more beneficial will of course continue to be available to the non-resident tax payer. While this proposal is expected to generate additional tax revenues this will significantly impact the e-commerce sector.
The FM has emphasized on structural reforms to grow the economy and has once again walked the deficit tightrope to create balance of meeting populist demands and supporting economic growth by focusing on fiscal discipline and reforms. With global economies undergoing paradigm shift in their tax regimes, it will be interesting to witness how far the Government’s tax reforms continue to contribute to growth in tax to GDP ratio.The writer is Partner – Tax & Regulatory Services, EY India.With inputs from Ankur Singla, Director, EY India.
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