Opinion: The 'Make in India' Budget - Corporate Tax Takeaways

(Jaideep Kulkarni is Partner - Tax & Regulatory services, EY India)

Finance Minister Arun Jaitley has presented his first full-year Budget. The Budget has been focused to encourage entrepreneurship and business in India with a view to promote domestic manufacturing and improving the investment climate in India. This is in line with Prime Minister Narendra Modi's key initiative viz.  'Make in India', 'Digital India', 'Swachh Bharat' and 'Skill India'.  It is a forward looking, futuristic and a business friendly Budget. Further, in order to encourage the much required boost to the Indian economy and to attract foreign direct investment into India, Mr Jaitley has provided some big bang reforms.

The key highlights of the proposed Finance Bill, 2015 which seem to be in line with the objective of the government to enable the ease of doing business in India are summarised herein below:

1) To be in line with the tax regimes of other neighbouring Asian countries, Mr Jaitley has proposed to reduce the tax rate for corporates in a phased manner from 30 per cent to 25 per cent over the period of next four years with effect from 1 April 2016.

2) With a view to promote the investment climate in the country and to stabilise the business sentiments, it is proposed that the implementation of General Anti-Avoidance Agreement (GAAR) be deferred by two years and the GAAR provisions be made applicable prospectively with effect from 1 April 2017. Further, all the investment made up to March 31, 2017 are proposed to be protected from the applicability of GAAR.

3) To put to rest the ongoing controversy on indirect transfer of assets located in India, the Finance Minister has clarified that the term "substantial" would mean to include at least 50 per cent of the value derived from the Indian assets owned by a company and has provided further clarification on the mechanism of computation. This is a very welcome move as it provides clarity and certainty as regards the taxation of such transfer. Whilst the clarification is proposed to be made applicable from April 1, 2016, it would have been good if it was made applicable for past events / transaction also.

4) With a view to boost the inflow of advanced technology into the country, the tax rate on payments for "Royalty" and "Fees for technical services" is proposed to be reduced from the existing rate of 25 per cent to 10 per cent.

5)Unlike cross border transactions since domestic transactions are tax neutral, the finance minister has proposed to increase the threshold for domestic transfer pricing from Rs 5 crore to Rs 20 crore to reduce unnecessary administrative and compliance burden on the tax payers. It is very welcome move for the small and medium scale industries and would exempt small entities having inter-group transactions from probable litigations in this regards.

6) In order to promote the CSR related activities it has been proposed to provide a 100 per cent deduction on contribution to Swachh Bharat and Clean Ganga schemes.

7) With a view to eliminating compliance burden on the tax payer and administrative burden on the department, the government has taken a bold step by abolishing the existing Wealth Tax regime and in turn levying an additional surcharge of 2 per cent on income of more than Rs 1 crore.

8) To curb the black money inflow into India, it has been proposed to mention permanent account number or PAN for all the transactions of value exceeding Rs 1 lakh.

9) Considering that many of the key provision of direct tax code (DTC) has been incorporated in the existing Income Tax Act, it is proposed that DTC will not be introduced in coming years.

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