Budget 2017 - Non-populist Budget with a bold agenda
New India Express
Krishna Kumar GV
Tax Partner, EY India
The Finance Minister while delivering the budget speech has set out a bold agenda - Transform, Energize and Clean India. In line with this, the budget proposals have focused on long-term requirements and resisted populism. Some of the bold announcements include abolishing of the Foreign Investment Promotion Board to signal a change in the outlook towards attracting foreign investment, pushing the digital agenda to reign in large cash transactions, ushering much-needed transparency in electoral funding and promoting affordable housing.
To signal further intent in boosting economic activity, corporate tax rates of companies with an annual turnover of under Rs.50 crores has been brought down to 25%, which as per the FM’s data will benefit 96% of corporates presently filing tax returns. Also, as a further confidence-boosting measure for domestic entrepreneurship, the FM has addressed some of their demands in increasing the period of tax holiday for eligible start-ups as well as protecting their eligibility to carry-forward tax losses despite any changes in shareholding as long as the initial shareholders continue to hold shares.
The other positives in the Budget include reducing the holding period to two years for immovable property in order to be eligible for a concessional capital gains tax rate and relaxing the domestic transfer pricing regime by excluding some transactions from its scope.
There are some proposals with far-reaching impact. The Budget introduces provisions to tackle the challenges of thin capitalisation. It is proposed that the amount of interest allowed as a deduction in cases of borrowings from, or guaranteed by, a related party being a non-resident would be restricted to 30% of the adjusted earnings of the borrower with a limited eligibility to carry-forward and set-off such excess interest for a period of eight years. Another such provision is to require a secondary adjustment whereby a taxpayer accepting an upward transfer pricing adjustment in certain scenarios will have to repatriate such differential into India, failing which notional tax imputation of interest will follow.
The Budget also proposes to amend the MAT regime to allow the credit for MAT paid to be set-off for 15 years and also attempts to neutralise the impact on account of adoption of Ind-AS.
While there are things to cheer for, Corporate India’s expectation to defer, if not abolish, provisions as to the Place of Effective Management, Income Computation Disclosure Standards and General Anti Avoidance Rules have gone unanswered.
Ritesh Kumar S, Senior Tax Professional at EY contributed to the article
The views expressed in this article are personal to the author