India: Budget 2015-16 - For The Corporates: Corporate Tax Rate

India: Budget 2015-16 For The Corporates
Last Updated: 9 April 2015

Article by Megha Kapoor
Singh & Associates
The Union Budget for the financial year 2015-16, is focused on attracting investors, making
India a business hub and reviving the economic growth in general. Apart from the above, it
has definitely a lot in store for the corporate sector.
Among the positives for corporate India, here are few important changes which appear to
bring predictability and some level of simplicity and transparency in the Government's
thinking and proposals:
CORPORATE TAX RATE

The rate of corporate tax is proposed to be reduced from 30% to 25% over a period of four
year, from next financial year onwards. This reduction will however come along with phasing
out of certain exemptions and incentives which the corporate tax payers could avail till now.
The proposal is based on the contention that corporate tax in India @ 30% is higher than the
rates in other Asian countries thus making domestic Indian market uncompetitive. Further the
effective collection rate is 23%, which is an added loss, due to excessive exemptions and
incentives. The exemption regime has given birth to foray of tax litigation along with loss of
revenue and a disadvantageous position in global market.
This move can encourage foreign investors to invest in India and also help the government
gain some revenue by reducing the exemptions. The effect on India Inc. seems positive right
now but the final picture will depend on the final policy regarding exemptions.
Considering the reduction of corporate tax rates, the promoters will tend to reinvest the
money into the company which will ultimately enable the company to promote investment
and to create more jobs.
WEALTH TAX AND SURCHARGE

Wealth tax is proposed to be abolished completely and be replaced by 2% of additional
surcharge on super rich taxpayers having taxable income of more than Rs. 1 crore.
Wealth tax was fixed at 1% of net taxable wealth of a taxpayer including assets like house,
car, jewellery etc. which exceeded value of 30 lakh rupees. Due to low amount of tax
collection and high cost of collection, the overall wealth collection procedure is very
burdensome on the tax department, moreover since it is difficult to track assets like cash and
gold. The government believes that the 2% surcharge is likely to bring in Rs. 9000 crores in
revenue, contrary to Rs. 1,008 crores which is the wealth tax collected for the year 2013-14.
Further, the companies and individuals will be spared from the additional burden of filing
wealth tax returns as the information can now be captured in the income tax returns.
REAL ESTATE INVESTMENT TRUSTS (REITS) AND

INFRASTRUCTURE INVESTMENTS TRUSTS (INVITS)
Real Estate Investment Trusts (REITs) and Infrastructure Investments Trusts (InviTs) have
been incentivized again, by giving them pass through facility on the rental income generated
by the assests owned by these funds. In the previous budget REITs had been given a partial
pass through on interest income generated by them.
Moreover, it has been proposed to rationalize the capital gains regime for sponsors existing at
the time of listing of the units of REIT's and InviT's, subject to payment of Securities
Transaction Tax (STT).This has been done to give respite to and revive the construction
industry. Freeing the funds stuck in various completed projects is also an issue. Pass through
provisions may help avoid double taxation.
GOODS AND SERVICE TAX (GST)

The Finance Minister promised in his budget speech that the much awaited Goods and
Services Tax (GST) will be implemented by 1st April, 2016. GST will replace multiple
indirect state and central taxes and will reduce the cascading effect brought by taxation at
multiple stages by various bodies. The government is preparing for this switch by increasing
the service tax to 14%.
This uniform method of taxation is set to benefit the Fast Moving Consumer Goods
Companies (FMCG) and boost investor confidence.
MAKE IN INDIA
a) Setting up manufaturing units in backward areas of the state of Andhra Pradesh and
Telangana has been incentivized to promote manufacturing industry in India. From 1st April,
2015 to 31st March, 2020 any industrial being set up in backward areas of the given states
will be eligible to claim additional depreciation of 15% and additional investment allowance
of 15% on cost of new plant and machinery acquired and installed. This deduction will be in
addition to existing deduction available under section 32AC of the Income Tax Act.
This is a welcome measure in materializing the government's promise of making India a
manufacturing hub and development of indigenous industries.
b) In his speech, Finance Minister said that additional depreciation at 20% is allowed on new
plant and machinery installed by a manufacturing unit or a unit engaged in generation and
distribution of power. However, if the asset is installed after 30th September, 2014 only 10%
of the additional depreciation is allowed. It is proposed to allow the remaining 10% of the
additional depreciation in the subsequent previous year.
c) Further section 80JJAA of the Income Tax act is to be amended to provide tax benefit to
"'person' deriving profits from manufacture of goods in a factory and paying wages to new
regular workmen." Eligibility for this exemption has been set at factories employing 50
workmen.
d) Rate of income tax on royalty and fees for technical services has been reduced from 25%
to 10% in order to facilitate technological support to young and small enterprises.
MINIMUM ALTERNATE TAX (MAT)
The MAT provisions have been relaxed to the extent that the offshore investors don't have to
pay MAT. The objective of MAT provisions was to bring 'zero tax companies' within the tax
net. Since the government is focusing on its 'Make in India' drive, this exception will attract
more investments from the Foreign Institutional Investors.
EASE OF DOING BUSINESS

a) Now online central excise and service tax registration can be completed in two working
days. Further such taxpayers can issue digitally signed invoices and maintain electronic
records. Time limit for taking CENVAT credit on inputs and input services is being increased
from six months to one year as a measure of business facilitation.
b) The budget speech states that the present taxation structure has an inbuilt incentive for
fund managers to operate from offshore locations. To encourage such offshore fund managers
to relocate to India, it is proposed to modify the Permanent Establishment (PE) norms to the
effect that mere presence of a fund manager in India would not constitute PE of the offshore
funds resulting in adverse tax consequences.
c) A high level committee has to be set up by CBDT in order to review cases arising out of
retrospective amendment to Income Tax Act regarding indirect transfers and coming to notice
of the Assessing officer. Review by the committee will be necessary before any action can be
taken in such cases.
COMPLIANCE AND BLACK MONEY

With the aim to bring back the wealth which legitimately belongs to the country, it has been
proposed to enact a comprehensive new law on black money. Stringent provisions are to be
put in place to penalize non disclosure of foreign assets and income. The offence will be
made non compoundable and recourse to Settlement Commission will be restricted..
Rigorous imprisonment up to 10 years and levy of 300% of tax as penalty for concealment of
income and assets has been proposed. Non filing of return or filing of return with inadequate
disclosure of foreign assets is punishable with rigorous imprisonment up to 7 years.
Moreover, the definition of 'proceeds of crime' under Prevention of Money Laundering Act
has been amended to enable attachment and confiscation of equivalent asset in India in the
cases where the asset is located abroad and cannot be forfeited.
Apart from the above, Benami Transactions (Prohibition) Bill will be introduced in the
current session of the Parliament as stated in the Budget Speech. This will restrict the benami
transactions and holding of benami property.
THRESHOLD RAISED FOR TRANSFER PRICING

In case of domestic transfer pricing, the threshold limit has been increased from INR 5crore
to INR 20Crore [Section 92B]. This welcome step will benefit the small companies from
making unnecessary compliances and hassles apart from easing the administrative burden on
revenue authorities.
YOGA BECOMES TAX-FREE
Yoga is proposed to come under the ambit of charitable purpose under section 2(15) of the
Income Tax Act. Accordingly, even if the activity is in the nature of trade, commerce or
business, the trust would enjoy exemption on income from activities relating to yoga. This
will ease the various opinions on whether the yoga is an activity eligible for tax exemption.
Although, the Bombay High Court, in the case of the Rajneesh Foundation, had stated: "The
philosophy and teaching of Acharya Rajneesh have become more acceptable to people during
the last few years. Admittedly, the main thrust of the respondent is on meditation and nobody
can dispute that, in India, meditation has been a very important source for physical, mental
and spiritual well-being of human beings... When a large number of people feel (thus)... it
must be held to be an activity for the advancement of general public utility."1
In order to mitigate the problem faced by many genuine charitable institutions, it is proposed
to amend the ceiling on receipt from activities in the nature of trade, commerce or business to
20% of the total receipts from the existing ceilings of INR 25lakhs.
Further, it is proposed to amend the provisions of the IT Act so as to provide a mechanism to
pre-empt the repetitive appeals by the revenue in the same assessee's case as the same
question of law year after year.
CONCLUSION
There is definitely more good news than bad news for India corporate sector in the budget.
Overall tax burden and liabilities on companies have been reduced and government support
has been extended for setting up of new corporations. An effort has been made by the
government in the direction of reducing unnecessary burden on corporations and reducing
paper work. The focus is on restoring investor confidence and also by way of increasing the
threshold for domestic transfer pricing and promoting yoga activities. But this budget is
bound to increase tax litigation due to black money provisions. The final effects of the budget
on corporations will be known only when the proposals are implemented but right now the
budget is a gift from Modi Government to India Inc.

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India: Budget 2015-16 For The Corporates

Last Updated: 9 April 2015

CORPORATE TAX RATE

WEALTH TAX AND SURCHARGE

REAL ESTATE INVESTMENT TRUSTS (REITS) AND

GOODS AND SERVICE TAX (GST)

MINIMUM ALTERNATE TAX (MAT)

EASE OF DOING BUSINESS

COMPLIANCE AND BLACK MONEY

THRESHOLD RAISED FOR TRANSFER PRICING

YOGA BECOMES TAX-FREE

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