Union Budget 2017-18: The Not-so-popular “populist” budget

Garima PandeWhile corporate India has been reeling under the impact of ‘demonetization’ and working overtime to gear up for the impending GST implementation, all eyes were on the FM on how some of the long outstanding industry demands would be addressed by Budget 2017. As a run-up to the Budget, with the Finance Ministry bringing much awaited clarity on the Place of Effective Management and General Anti-Avoidance Rules, expectations were building-up on Budget 2017 delivering on some of the industry expectations relating to corporate tax rate reduction, tax code simplification and clarity on controversial tax issues such as software taxation and retrospective tax amendments.At a time when India’s ranking on the World Bank’s Ease of Doing Business survey has moved up only by a notch in 2017 and with IMF downgrading India’s growth outlook, it was only fair for corporate India to hope for Budget proposals that drive the much-required fiscal stimulus and bring back India’s economic growth to its original forecast of 7.6%. In the backdrop of some interesting statistics set out by the Hon’ble FM at the beginning of the tax proposals, the stage was set for some major tax reforms coming our way. However, what followed was a Budget that was low on drama particularly for corporate India! While the FM did not make any radical announcements for corporate India, the fine print of the Finance Bill does carry some key proposals some of which aim to achieve tax simplification and ease of doing business. The reduction in corporate tax rate for medium and small enterprises (MSME) from 30% to 25% is a welcome move particularly since this should favourably impact nearly 96% of return filing corporates. Reduction in the time limit for filing tax returns and completion of tax assessments, is also a positive step towards improving the tax administration and expediting the grant of tax refunds to corporate India. While exemption provided to FPIs on applicability of indirect transfer provisions was much awaited, corporate India expected clarity on various other litigious tax issues, which still remain unanswered. The amendments in respect of capital gains exemption for conversion of preference shares to equity and extension of concessional withholding tax rates in case of ECBs and Rupee Denominated Masala Bonds are both favourable moves. The key impetus of the Budget appears to be promotion of housing and real estate sector where the FM has introduced various relief measures such as extension of tax holiday in case of affordable housing projects, deferral in taxation of notional rental income earned by real estate developers from unoccupied houses and reduction in the holding period for computing long-term capital gain on immovable property from 36 months to 24 months. Consistent with the focus on fostering entrepreneurship, the FM has announced further tax relaxations for start-ups by way of permitting carry forward of losses to future years despite change in shareholding and extending the overall block for availing profit linked deduction from 5 years to 7 years. While the IT/ITeS sector is still coping with the recently announced restrictions on H-1B visa rules, the proposed reduction in withholding tax rate on payments to call-centers from 10% to 2% and extension of Minimum Alternate Tax Credit period from 10 years to 15 years should be a cause for cheer. While the absence of any drastic corporate tax amendments could also be read positively, overall, the budget seeks to be a fairly balanced budget. With incentives targeted for specific sectors such as real estate, financial services and start-ups, the Budget should provide relief for a segment of corporate India. However, it does fail to live upto the expectations of some of the other sectors like Manufacturing, IT/ ITeS, Telecom and Automotive, which could well be heard asking for more. (Garima Pande is a Partner with EY India. Views expressed are personal.)