Direct Tax Rulings Overruled / Impacted by Finance Bill, 2017

"Tax Administration : honouring the honest" is one of 10 themes focussed by the Finance Minister while presented Union Budget 2017. Tax litigation is an integral component of the Indian tax system and successive Budgets have reacted to the Court rulings.

Taxsutra Team has compiled an indicative list of case-laws on positions that are prima-facie impacted if the proposed amendments take effect. Click here to read the Insight titled “Direct Tax Rulings Overruled / Impacted by Finance Bill, 2017”.

Analysis of Budget 2017 proposals

Taxsutra analysis of key Direct tax and Indirect tax proposals of Finance Bill, 2017 

Budget 2017 proposes secondary adjustment provisions for imputing interest

Budget 2017 inserts a new section 92CE to requiring assessee to carry out secondary adjustment; Secondary adjustment provisions not applicable if the amount of primary adjustment does not exceed Rs. 1 Cr or primary adjustment pertains to period prior to AY 2017-18; Secondary adjustment applicable where the primary adjustment to transfer price has been (i) made suo motu by the assessee in his return of income; or (ii) made by AO and accepted by assessee; or (iii) is determined in APA/MAP; or (iv) made as per safe harbor rules; Provides where as a result of primary adjustment, there is an increase in the total income or reduction in the loss of the assessee, the excess money which is available with its AE, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such AE and the interest on such advance, shall be computed as the income of the assessee; Further, in order to reduce the compliance burden of taxpayers, expenditure in respect of which payment has been  made by  the assessee to a person referred to in  under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act

Finance Bill legislates BEPS Action Plan 4, restricts interest deduction for NR payments

Finance Bill proposes to insert Sec. 94B in line with recommendation of BEPS Action Plan 4, restricts deduction towards interest paid to non-resident AE to 30% of EBITDA (earnings before interest, taxes, depreciation and amortization); Provisions to trigger only when interest expenditure exceeds Rs. 1 Cr and excludes banks and insurance companies from its ambit; Provisions  applicable to Indian company and Indian PE of foreign entity; Debt shall be deemed to be treated as issued by AE if it provides an implicit or explicit guarantee to the lender or the AE deposits a corresponding and matching amount of funds with the lender

Copy of Memorandum to Finance Bill, 2017

Click here to download copy of Memorandum to Finance Bill. 

Economic Survey 2017

Economic Survey 2017 highlights long term ‘demonetisation’ benefits of increased digitalization, greater tax compliance and reduction in real estate prices as against short-term costs of contraction in cash money supply, temporary slowdown in GDP growth; To promote greater income declaration and dispel fears of over-zealous tax administration, survey recommends reducing tax rates, stamp duties and an improved tax system; On faster re-monetisation, survey suggests free convertibility of cash to deposits including elimination of withdrawal limits; Survey further suggests bringing land and real estate into the GST; Noting large property-tax potential, Survey suggests tapping property- tax to generate additional revenue at city level ; On the issue of uncertainty or credibility, Economic Survey adds that "Tax arbitrariness and harassment could attenuate credibility"

BMR / Forbes Survey

BMR Advisors in association with Forbes India undertook a poll (in Dec. 2016) with CEOs, MDs, Chairman, Presidents and CFOs of corporate India from across industries, prior to the budget 2017 through an internet based survey portal. The poll was designed to garner opinions from business leaders on economic growth and ease of doing business in India, expectations in terms of any policy, tax or regulatory reforms, opinion on special initiatives, GST, and industry specific matters. A primary and secondary research on current developments (including government policies and flagship programs, challenges and opportunities for ease of doing business in India and critical tax reforms including GST) was conducted.

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