“There are several important and positive proposals in the Budget. The reduction of the corporate tax rate for MSMEs to 25% is welcome, but one concern is that this brings the main rate too close to the MAT rate. This gap cannot really be addressed by increasing the MAT credit period, and one would have thought that a corresponding reduction in the MAT rate for such MSMEs could have been considered. The absence of an across the board cut on corporate rates is also something that is interesting, particularly in light of the roadmap issued by the FM two years ago. Apart from this, there are many other positive changes, including sops for affordable housing, clarifications for FPIs, etc.

Two other changes that will have a far-reaching impact on our economy are the changed regime for funding political parties and the ban on cash transactions in excess of Rs. 3 lakhs. These are in line with the objectives of the demonetization and seem to be intended to further its overall objective of reducing our economy’s dependence on cash."

"A Robin Hood budget which has increased the tax on the upper middle class earning between Rs.50 lakh to Rs. 1 crore to pay for the reduction in tax rates at the lowest slab of Rs.2.5 lakh to Rs. 5 lakh. The relief was expected but, it was believed that it would be a bounty from the Government which would be made up to the Government from better compliance – an expected result of demonetization. The higher tax on the upper middle class is therefore, unjustified.

The strong positive is the relief to corporate India where the tax rate is reduced to 25% for companies with a turnover of less than Rs 50 crore. - stated to cover 96% of all companies with a turnover. It will be necessary to examine the fine print to ascertain the impact on companies with passive income by way of interest, rent, etc. One hopes that next year the reduced rate of 25% will be applied to all companies. Over all a Budget which has minimum changes in the tax structure and expects to achieve greater impetus to growth by enhanced spending on capital (building of infrastructure) and on welfare measures – the focus, thus, shifts to the efficacy of these measures."

“The budget has an inclusive agenda with more good, less bad and no ugly. The Finance Minister has presented a balanced and well-thought budget keeping in mind the theme ' SAB ka vikas Sabka sath ', though, I do see under current of move to redistribute income, by alleviating pain of citizens affected by the demonetisation and a corresponding levy of surcharge on high net worth individuals and large businesses.  He has been modest on the estimate of the fiscal deficit of 3.2 percent walking the middle path, with a commitment to study the NK Singh panel on FRBM.  The proposal to abolish FIPB is a bold move, expected to reduce M&A timelines, create new investment opportunities for foreign investors.  The economic secretary of course cautioned that the existing FDI limits on defence etc. And FDI in sectors that entail national security shall be subjected to controls. An interesting announcement has been the creation of integrated PSU oil major, this could lead to consolidation of existing oil PSUs and possibly look at international markets for funding and/or possibility of leveraging on larger balance sheet for bidding for upstream assets, given India's thirst for oil. 

The Finance Minister has presented detailed statistics about the demographics of individual and corporate taxpayers justifying overall tax rate changes, revenue considerations and delay for an across the board tax reduction. On tax side, whilst there has been no big announcements, some proposals have been made to boost the foreign investment and provide relief to middle class individuals and MSMEs. Tax proposals to political contributions taxability is suggestive of bold moves the Government is keen to pursue. A proposal on the concessional rate of 5 percent on external commercial borrowings upto 30/06/2020 is a welcome move, similarly proposal to exempt certain categories of Foreign Portfolio Investors from indirect transfer provisions reiterates government commitment to provide non-adversarial tax regime.   A proposal has been made to reduce the corporate tax rate to 25 percent for MSMEs having turnover upto Rs 50 crores; for individuals some relief has been provided for income earners upto Rs 5 lakhs. 

An unexpected announcement in the budget is the proposal to reduce holding period from 3 years to 2 years for long-term gain on transfer of immoveable property, this is going to boost the investment in the real estate sector.  Further, keeping upto the expectations, proposals have been made to digitalize the payments including no deduction for the expenditure above Rs 10,000 in cash.  On indirect tax side, no tinkering has been made with the excise duty and service tax rates, possibly the Finance Minister would make one-time increase at the time of implementation of GST.”

"Breaking from the conventional practise, the Modi Government in its Budget 2017 has attempted to provide a road-map for the overall development of the society through its 10 thematic areas. Being historical in atleast 2 senses viz, inclusion of Rail Budget and preponing the date to 1^st Feb, it has attempted to prop up infrastructure, housing and digitalisation. The Rural focus to generate employment, help farmers double their incomes and improve road connectivity are all measures in the long run aimed at integrating Rural economy into the mainstream economy of India. 

Reduced taxation @ 25% for Companies with turnover upto Rs 50 Crores aims to soothe MSME’s who had suffered due to slackness in business due to demonetisation. It is truly heartening to see the caption of ‘Honouring the Honest’ in the theme of Tax Administration. 

The Budget needs to be looked at more from an economic perspective and the direction it seeks to provide for our future generation. The attempt to bring transparency in political funding, investing more on education, skill development and making youth ready for jobs are noteworthy. One hopes that proper implementation of measures announced for each of the themes, will help India move in the right direction in FY2017-18 and thereafter. The statistics of individuals buying cars and going on foreign tours with those filing tax returns shows that urgent steps are necessary to ensure that Tax GDP ratio gets sufficiently enlarged for existing tax payers to get relief from lowering of tax rates. 

Overall, we are in for some exciting times with more opportunities for youth to build a modern India."

"The Finance Bill, 2017 (the Finance Bill), proposes to reduce the corporate tax rate to 25% from 30% in case of companies with turnover upto INR 50 crores,. It also proposes to carry forward Minimum Alternate Tax (MAT) credit for 15 years from existing 10 years. Conditions of 51% holding under Section 79 of the Income-tax Act, 1961 (the Act) for carry forward of losses has been exempted for startups. However, the condition with respect to promoter ownership remains same.

The Finance Bill also proposes to exempt the Foreign Portfolio Investors' (in case of Category 1 and Category 2 investors') from the provisions of indirect transfer. Further indirect transfer provisions shall not apply in case of overseas redemption of shares or interest outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.

The holding period of immovable property being land and building will be reduced to 2 years from 3 years for the purpose of claiming long term capital gains tax exemption. In case of a Joint Development Agreement, the liability to capital gains tax will arise in the year when the project is completed.

The scope of domestic transfer pricing is restricted only if one of the entities involved in related party transaction enjoys specified profit-linked deduction.

From a personal tax perspective, the Finance Bill reduces the income-tax rate for income of INR 2.5 to 5 Lakhs to 5 per cent from the existing 10 percent. There is a further proposal to levy surcharge of 10 per cent on income between INR50 lakh to INR 1 crore. Further, simplified Income tax return forms proposed for those earning income other than income from business upto INR 5 Lakh".

"The Hon’ble Finance Minister has proposed amendments to the Transfer Pricing Rules to provide for secondary adjustment, wherein any transfer pricing adjustment would need to be billed out and collected from the associated enterprises and interest would accrue upto the receipt of the amount from the associated enterprises. This increases the burden on taxpayers who may want to avoid litigation and offer some additional income to tax to buy peace. It makes the safe harbour more expensive and hence, more unpopular. It’s an effort to raise more tax from voluntary TP adjustments and would hence, dissuade taxpayers from voluntarily offering tax to avoid controversy. The removal of the domestic TP provisions to Section 40A(2) is a good move, but it would have been more effective if Section 40A(2) was removed entirely. Leaving 40A(2) in the statute only shifts the onus proof from taxpayer to the tax department but the instances of unnecessary litigation on account of 40A(2) may persist in corporate assessment instead of TP assessment.

In summary, looking at the overall package, the budget promises to support industry and facilitate growth."

"The FM's commitment to stay with fiscal discipline while continuing with rural and infrastructure spending is a positive outcome. Honouring the Prime Minister's dream of housing for all, changes made for affordable housing sector by granting infrastructure status and relaxation in conditions for claiming tax incentive is welcomed. Other forms of reforms including certainty provided for overseas transfers for offshore funds investors should continue the flow of capital into the country, including continuing the lower 5% withholding tax rate for debt inflow. Reduction in tax rates for medium and small enterprises and middle class individuals should result in 'tax inclusion', which is important given the backdrop of demonetisation and the upcoming GST law. The intent of ease of doing business comes through in the form of domestic TP exemptions, abolition of FIPB, introduction of accountability on tax officers and reduction of timelines for scrutiny. "

"The year 2016-17 has been marked by several economic policy developments. On the domestic side, the GST Constitutional Amendment paved the way for the long-awaited and transformational GST, while demonetisation of high value currency notes signalled a regime shift to punitively raise the costs of operating in a “black economy”. On the international front, Brexit and the US elections may herald a tectonic shift for the global and the Indian economy. This backdrop to the Union Budget 2017 was analogous to the “chakravuyha” battle formation of the Mahabharata. But that is where the mythological analogy ends. The Finance Minister’s Budget speech suggests that he has successfully pierced the economic/ fiscal “chakravuyha”. The primary focus of the Budget appears to be spending more on the rural, agricultural and housing sectors. The tax and other policy measures announced in the speech seek to improve ease of doing business in India and move towards a simplified and non-adversarial tax administration. Industry perhaps would still need to wait a little longer for the much expected across the board corporate tax reduction."

“From hearing the speech, the tax budget seems positive for insurance, the expansion of the insurance scheme for farmers and the exemption from withholding tax for payments made to individual insurance agents are positive”.

"Glad fiscal prudence has prevailed over populism. Budget continues the agenda of growth for all and focus on global and India realities. The FM recognised the contribution of the salaried class to the Tax Revenues yet did not meet the expectation of Standard Deduction of this class of tax payers. However a tax saving for all is proposed  by reducing the rate of tax from 10% to 5% for the income slab of Rs.250,000 to Rs. 500,000.  So for income  up to Rs. 300,000 no tax payable.  Simplification of tax return forms for income up to Rs. 500000 provided no business income. LTCG period of land and building reduced to 2 years from 3 years. Fine print of the budget document will surely have more details."   

“No major indirect tax related announcements are in line with the general expectation as the nation is on the verge of transitioning to GST. 

Keeping the service tax rate unchanged and withdrawal of R&D cess are welcome and pragmatic decisions at this juncture for boosting economic growth of the country. R&D cess withdrawal in particular will encourage import of technology and compliments the Make-in-India campaign. 

Reassurance that the government is up to speed on GST implementation work (including IT preparedness) is good news. Also, commitment to initiate GST awareness / orientation for businesses starting next fiscal, reaffirms the collaborative and inclusive approach of the Government to effectively implement GST. 

The stated focus areas of the budget 2017 are eliminating black money, promoting a digital economy by facilitating cashless transactions and increasing foreign investment.  However, in view of impending GST, no major steps seem to have been taken from an indirect tax standpoint on these aspects. 

The announcement on the correction in excise and customs duty rates, largely to address duty inversion support the ‘Make in India’ initiative.  The fine print would need to be analyzed to determine the exact impact on businesses.”

"Overall theme being a stimulating growth and ease of doing business, the finance minister announced that domestic transfer pricing to apply only if one of the domestic related party with whom transaction being considered is enjoying a special tax exemption. This goes in line with the objective of introducing transfer pricing to prevent tax evasion. There was no meaning of evaluating transfer pricing if profits were being moved from one pocket to other and both having similar tax rates and being assessed in India. This has been one ask that corporate india has been lobbying for since domestic transfer pricing was introduced, which has now been addressed. In addition overall the mood on providing positive tax proposals has been more focused towards small and medium enterprises and lower income bracket population than the larger companies. Infact introduction of surcharge for individuals earning income between 50 Lakhs and 1 crore would be an unexpected unpleasant surprise for that category of tax payers. In totality I think the budget lays a long term path and the key will also lie in ensuring to make india from a non tax compliant country to a tax compliant country in the next two years through appropriate tax administrations and scrutiny from the demonitisation data they have gathered. "

“The speech of the Finance Minister in Parliament confirms that this Government will continue to address some of the key tax concerns, for both domestic investors and international investors. Given the limited fiscal situation and the sluggish growth in tax revenues, as described by the Economic Survey, the Finance Minister has found some space for addressing concerns of several stake holders - the 5 percent drop in tax rates for small individual tax payers and for the SMSE corporates, extension in the period of lower 5 percent withholding tax on foreign debt, higher limits for tax audits, and amendments to the controversial provision on taxation of indirect transfers. The much feared increase in service tax rates was not mentioned. The attack on black money generated via cash economy continues with tax provisions limiting deduction when over INR 3 lakhs is incurred in cash, and anonymous cash deposits to political parties reduced to INR 2000. So, overall several helps, no visible hurts, few bold ideas and several unfulfilled expectations.”

"Playing Safe!! Moving towards GST!! 

The Union budget 17-18 is a logical extension of last year’s budget. The focus remain where it was and focus is on improving the compliance by broadening the tax base both on direct and indirect tax front. That seems to be logic behind the budget projection of a direct and indirect tax growth of 15.3% and 8.8% over last year revenue.  The Finance Minister’s reiteration about the steps taken to implement GST which is the biggest tax reform in India since independence is an indication that the Government is leaving no stone unturned to introduce GST from July 2017. Service tax rate, excise duty rate has not been increased as anticipated by tax experts. Finance Minister harped that GST will bring more taxes to the Centre and the State and substantial progress has been made in ushering in GST regime. GST Council has finalized almost all recommendations with consensus. It was announced that from 1st April 2017, CBEC will reach out to industries to make them aware of new taxation system. 

To promote cashless transactions and boost digital economy in India, miniaturised card readers and mPOS micro ATMs standards for version 1.5.1, finger print readers, scanners and iris scanners have been exempted BCD (basic custom duties), excise duties, CVD (countervailing duties), SAD (special additional duty). Simultaneously, parts and components used for manufacturing of such devices has been exempted from excise duty so as to encourage domestic manufacturing of these items.

In yet another boost for digitisation, the Government has proposed to remove service charge on booking rail tickets on IRCTC. This means travel by e- ticket will be cheaper and rates can go down by ₹50 depending on which class is used to travel. The Government and Prime Minister has been pushing for going cashless and digital and with these new announcements, the Government is optimistic that people will be encouraged to use digital space.Playing Safe!! Moving towards GST!! 

The Union budget 17-18 is a logical extension of last year’s budget. The focus remain where it was and focus is on improving the compliance by broadening the tax base both on direct and indirect tax front. That seems to be logic behind the budget projection of a direct and indirect tax growth of 15.3% and 8.8% over last year revenue.  The Finance Minister’s reiteration about the steps taken to implement GST which is the biggest tax reform in India since independence is an indication that the Government is leaving no stone unturned to introduce GST from July 2017. Service tax rate, excise duty rate has not been increased as anticipated by tax experts. Finance Minister harped that GST will bring more taxes to the Centre and the State and substantial progress has been made in ushering in GST regime. GST Council has finalized almost all recommendations with consensus. It was announced that from 1st April 2017, CBEC will reach out to industries to make them aware of new taxation system. 

To promote cashless transactions and boost digital economy in India, miniaturised card readers and mPOS micro ATMs standards for version 1.5.1, finger print readers, scanners and iris scanners have been exempted BCD (basic custom duties), excise duties, CVD (countervailing duties), SAD (special additional duty). Simultaneously, parts and components used for manufacturing of such devices has been exempted from excise duty so as to encourage domestic manufacturing of these items. 

In yet another boost for digitisation, the Government has proposed to remove service charge on booking rail tickets on IRCTC. This means travel by e- ticket will be cheaper and rates can go down by ₹50 depending on which class is used to travel. The Government and Prime Minister has been pushing for going cashless and digital and with these new announcements, the Government is optimistic that people will be encouraged to use digital space." 

“The Finance Minister seems to have taken seriously the CEA's recommendations in his Economic Survey on follow on steps required to be taken post demonetisation to tackle parallel economy. Thus the FM has proposed perhaps for the first time ever that political parties will lose their income tax exemption if they accept cash donations beyond the new lower limit of Rs 2000. The FM has also provided for complete disallowance of payments( capital or revenue) exceeding Rs3,00,000 in cash. On the incentive side, the FM has passed on the entire 5 % corporate tax rate reduction to MSMEs with turnover upto 50 crores. This measure coupled with a never before low tax rate of 5 % on lower income slabs upto 5 lacs means that disposable incomes will see a considerable increase and will lead to a consumption demand push in the economy.”

“The direct tax proposals of Union Budget 2017 are largely aimed to provide relief to small taxpayers including SME corporates, strengthening measures to curb black money and encourage transparency and use of digital media. Reducing tax rate to 5% for individuals in the lower income slab and 25% for SMEs having turnover not exceeding 50 lakhs would benefit is a welcome step. Though abolition of MAT would have been much wanted by Industry in line with the phasing out of tax holidays, allowing carry forward of MAT for additional five years should give some relief to the corporates. Reduction in timelines for assessment will improve tax governance."

“Doing away with applicability of transfer pricing provisions in case of domestic transactions not involving profit linked incentives is a very welcome step. Large representations have been made since the introduction of SDT provisions to exclude tax neutral transactions. The main intention of introducing domestic transfer pricing provisions in 2012 was to curb the benefit of tax arbitrage taken by taxpayers. It has also been experienced in last four years including first audit completed by tax authorities for FY 2012-13 that where there is no  tax arbitrage, compliance with domestic transfer pricing regulations only increased the compliance burden of the taxpayers and the tax authorities. While the fine print need to be see for more clarity on exclusion of transactions from SDT, it is expected to give relief from burdensome compliance to a number  of taxpayers”

“Expectedly the budget proposals for 2017 do not have major changes in indirect taxes attributed to the fact that GST will be introduced during the year. However, in order to facilitate a seamless introduction of GST there would nevertheless be consequential changes in the indirect tax laws in days to come.

The fact that there are no major changes can also be on account of steps taken by Government to introduce changes such as taxation of electronic services by non-residents, bringing parity to taxation of domestic and foreign shipping lines and readjustment of tax on tour operators, without waiting for these changes to be incorporated in the budget.

Among the changes that were expected was the rate adjustment, both in service tax and Excise. While the change in latter was expected in order to boost consumption though rate reduction, the change in the former by way of a small hike was expected in the overall direction of GST proposed rate at 18%. Merging the Cess with the rate would have been conducive to move towards GST.

An opportunity may have been missed to introduce a move towards encouraging voluntary compliance or to settle the disputes in the present regime so that they are not carried over to the GST.

An averment that the GST IT system readiness is on target and that most of the differences between the Centre and the States on GST mechanics have been amicable resolved by building consensus gives a positive signal for the implementation of GST as scheduled.

Stage is now set for the industry to gear itself and welcome the reform for which the roadblocks have been cleared.”

"One can look at the Direct tax proposal in the Budget in two ways: the provisions which have been introduced and provisions which could have been introduced, but are not there. In relation to the latter, the fear of tightening the definition of non-residents, and the introduction of inheritance tax has fortunately not happened; nor has the period for holding to qualify as long term been increased. A few disappointments: dividend taxation needed an overhaul, and ICDS should have been scrapped, but neither of which has happened.

One important change is the advancement of date for indexation from 1.4.1981 to 1.4.2021; since in relation to property and in relation to shares, the price appreciation in these 20 years would have been significant, this may result in significant reduction of capital gains liability. Corporate tax rates have not been reduced across the board, but the reduction in rates for companies having a turnover upto 50 cr, from approx. 35% to 27.25% will benefit them significantly.

There are some anti avoidance measures which are unfortunately based on outlier situation. These include restricting capital gains exemption paid at the time of acquisition (this has various problems - for eg. what about ESOPs?), seeking to substitute Fair Market Value (FMV) in place of sale price where unlisted shares are sold (the determination of FMV will become a nightmare and will have various practical difficulties) and thin capitalisation rules for cross border payments, this also has various adverse implications, including infrastructure companies)"

“The budgetary tax proposals are primarily targeted to provide impetus to MSME, reforming tax administration and curbing black money. The corporate tax rates cuts and reduction in tax rates in presumption taxation for MSME is a welcome step. Further, the banning cash transactions above Rs. 300,000 will act as like a vaccine after demonetisation. Further, the Finance Minister commitment to respect the honey taxpayers with dignity will aid in bridging the trust deficit. The increase in slab rate will provide relief to poor and senior citizens of the society and will aid in tax compliances. The reduction of scope of domestic transfer pricing will definitely reduce the compliance burden for India Inc."

"The Union Budget 2017 was presented against the backdrop of headwinds like economic slowdown due to demonetization and global uncertainty because of protectionist policies of large economies. The Budget was an important landmark because it represented a halfway mark for the current government and will shape its agenda for the elections in 2 years’ time. The pressure was further increased by the fact that different stakeholders had high expectations from the Budget which was being labelled as a ‘Make or Break Budget’.

In a nutshell, while the Budget was not path breaking, it was certainly well-rounded covering several important areas of the Indian economy like SMEs, Rural India, Digitalization and the common, middle class citizens. Some of the important takeaways from a direct tax perspective are highlighted below:

• For individual taxpayers’, while attention has been solely placed on the marginal reduction in taxes, there are certain dampeners like need to deduct TDS on rental payments greater than Rs. 0.5 lacs per month and restricting ability to set-off losses on House Property to Rs. 2 lac per year. 

• For corporates, the Budget has brought in positive changes like rationalization of domestic transfer pricing provisions to restrict its applicability to only such entities who are availing some specific tax incentives, increasing carry forward period for MAT credit to 15 years and reduction in corporate tax rate for MSMEs to 25%. However, this was not entirely in lines with expectations of India Inc. who were eagerly awaiting to see the roadmap for transitioning to a 25% tax rate and reduction in MAT levy. In addition, there were some surprises like thin capitalization provisions in the form of cap on interest payouts and uncertainty around long term capital gains exemption for shareholders of private companies seeking to exit in an IPO. 

• For non-residents, there have been welcome changes like extension of concessional tax regime under Section 194LC & 194LD till June 2020, extension of benefits to masala bonds, capital gains tax exemption for transfer of masala bonds to another non-resident and clarifications around non-applicability of indirect transfer provisions to non-resident investors in Category I and Category II FPIs.

To conclude, the Budget can certainly be credited with not upsetting the market by not introducing certain draconian provisions like estate duty, inheritance tax and levy of tax on long term gains on listed shares which everyone was wary about."

“The past year has seen a lot of initiatives been undertaken targeted at inclusive growth and we are pleased to see that that India as a country has a clear strategic direction for its economy with considerable focus on good governance.  This budget is a step in the right direction.  We see a significant boost to investment in rural areas, fillip to corporations in the MSME sector and continued focus on widening the tax base and creating a more tax compliant economy. It was reassuring to note that the technology platform development for GST is on schedule. We see the next few years as critical for corporations to build strong technology infrastructure to be able to comply with these changes, especially 2017, which will be a transformational year for the nation from a tax regime perspective.”

"In its attempt to move towards less-cash economy, the government has set itself an ambitious target of reaching 2,500 crore digital transactions across platforms, especially UPI (BHIM app) and Aadhar Pay. The government has provided an impetus to the digital payments infrastructure by proposing indirect tax incentives for PoS card readers, finger printer readers, scanners, etc. The government is also serious about discouraging cash payments and has introduced measures such as limit on cash expenditure reduced to INR 10,000, cash donation to trusts restricted to INR 2,000 and no cash transaction permitted above INR 300,000. Interestingly, contrary to expectations, a banking cash transaction tax (or equivalent) has not been introduced.

The thrust of the overall tax proposals is to stimulate growth. The promise to eventually reduce corporate tax to 25%, has been granted this year itself to SMEs with turnover up to INR 50 crore. Tax relaxations have been proposed for start-ups, and they can now choose to claim tax holiday for a period of 3 consecutive years out of 7 years (as opposed to existing 5 years). The real estate sector has also been granted considerable benefits and affordable housing will be given infrastructure status. All of this will lead to growth of the economy.

From the international tax perspective, FPIs have been granted concessions in relation to ‘indirect transfers’. The 5% concessional withholding tax rate on interest has been extended to 30 June 2020. On the transfer pricing front, secondary adjustments will now be permitted, which is a welcome relief for taxpayers. Overall, this will provide some impetus to FDI and FPI investment, though the expectations of overseas investments was probably much more. On the flip side, a limitation is placed on the deductibility of interest on borrowings from overseas group companies – the interest deduction is capped at 30% of EBITDA; in doing so the government has selectively implemented some part of BEPS Action 4."

"In the Budget speech, the Finance minister promises to transform, energise and clean the nation. The Budget focused on the betterment of rural economy, affordable housing and infrastructure, financial sector reforms, digital economy and improvement of tax administration.  While one was hoping for a lot more in the Budget in light of recent demonetisation and the consequent benefits earned by the Government, nevertheless, on the basis of the Finance Minister’s speech, it appears there are more favourable amendments as compared to the unfavourable amendments (some of which are listed below).  However, one only hopes that the fine print in the Finance Bill is in line with the speech of the FM and does not lead to any confusion or disappointment.

UNFAVOURABLE AMENDMENTS

Surcharge of 10% is proposed on income between Rs. 50 Lakh- 1 crores. 

FAVOURABLE AMENDMENTS

Housing and infrastructure projects provided impetus through a) the reduction in the holding period for immovable properties from 3 years to 2 years b) adopting 2001 as base year for indexation as against 1981 and c) increase in the basket of eligible investments for availing capital gains exemption which would result in lowering the capital gains tax.

Movement to cashless economy – transactions in cash in excess of Rs.3 Lakh banned.  Further, limit for capital as well as revenue expenditure reduced to Rs.10, 000.  Amount of cash donation received by political parties reduced to Rs. 2,000 per source.  A presumptive rate of 6% as opposed to 8% for entities having non-cash turnover less than Rs.2 crores. 

Ease of doing business has been enabled by the abolishment of the FIPB along with the reduction of applicability of specified domestic transactions to only those transactions wherein at least one of the parties is claiming profit linked deductions.

Increasing the tax base / benefit to small taxpayers – Reduction in tax rate from 10% to 5% for individuals having income between Rs. 2.5 Lakh – 5 Lakh, benefit of Rs. 12,500 for each individual and introduction of 1 page return form for assessee with income upto Rs. 5 Lakh and having no business income.

Further, time limit for completion of assessment has been proposed to be reduced to 18 months for FY 2017-18 and 12 months for FY 2018-19.

For foreign investors, beneficial withholding rate of 5% on ECBs has been extended till 30/06/2020 and also covers rupee denominated bonds.  Category I and II FIIs and FPIs are exempt from the application of indirect transfer provisions.

Allowable provisions on NPAs for banks increased by 1 percent along with the benefit of recognition of interest on NPAs only on receipt basis.

FAVOURABLE AMENDMENTS WHICH COULD HAVE BEEN BETTER 

Reduction in tax rates from 30% to 25% for corporates with a turnover of Rs. 50 crores which could have been accompanied with a reduction in tax rate of all other corporates to say 28-29%.

Encouragement tocorporates with the increase in the time limit for carry forward of MAT credit to 15 years from 10 years. Further, start-ups can carry forward the losses even if there is change in the beneficial ownership subject to promoter holding remaining intact.  However, considering the reduction in corporate tax rate, it would be desirable that MAT rate would be reduced from approximately 20% to 15%".  

"Reiterating that India remains in a bright spot in the world economy, the Finance Minister has done a careful balancing act in this budget. The fact that budget addresses most of the issues on expected lines becomes obvious once you look at the sedate way the markets gyrated during the entire budget speech.  The key highlights of the budget would include the planned abolition of the FIPB. The roadmap for the same will be announced shortly and it will be interesting to see how FDI is further smoothened. The proposal to form a single integrated public sector oil major confirms the rumours that the Government may merge oil sectors PSUs to create a behemoth. The move could probably be taking into account the moves made in recent years by China.  The acceptance of the SIT’s recommendations to ban transactions in excess of Rs. 3 lakhs will radically change the way India does business. Also, the proposed amendments in respect of the way political parties receive donations may also be a defining moment for Indian democracy.   The relaxations on personal income tax while welcome could have been extended to more taxpayers, especially the salaried class. The reduction of tax rate to 25% for small companies having turnover of less than 50 crores will provide a major fillip to corporate structuring.  Taking into account the troubles faced by the FPIs on account of the recent circular on the tax provisions regarding indirect transfers, the FM has exempted FPIs from this tax regime. This is an extremely welcome step that has nipped the dispute in the bud. The fine print will have to be looked into though to ensure that the amendment is retroactive in nature and not merely prospective.  All in all, the Finance Minister has done a fine balancing act and addressed the major points of concern. The economic picture is being painted favourably by the Government despite the angst generated by demonetization – one expects this budget play its part in lifting the Indian economy onward and upward".

"While the period leading up to the Budget had witnessed unrealistic expectations, especially lowering of direct tax rates for all taxpayers, the Finance Minister has attempted to deliver a balanced performance without compromising on the fiscal deficit targets.

Large corporates would be a bit disappointed with the status quo in tax rates as the expectation of some relief was justified due to the earlier announced roadmap to reduce corporate tax rate to 25%. Internationally, we will witness competitive reduction in corporate tax rates and the high effective tax rates (including Dividend Distribution Tax) may act as a deterrent in attracting foreign capital. Reduction in tax rate for corporate MSMEs to 25% with turnover of less than Rupees 50 crores is positive and would lead to employment generation through increased investments.

Removal of domestic transfer pricing compliance for entities not benefiting from profit linked incentives would provide much needed relief to the corporates as the efforts involved in complying with these regulations were onerous without contributing anything substantial to the exchequer.

The extension of the concessional withholding tax of 5% on interest on external commercial borrowings including Rupee denominated Masala Bonds for a further period of 3 years up to June 30, 2020 will give certainty to businesses to organize their finances efficiently".

"The Key amendment appear to be gradual movement towards 25 % rate for the corporate tax.  With introduction of this rate applicable to some companies last year, there is a bold step taken in this budget for including the entire MSME sector for companies having turnover of Rs. 50.00 crores or less.  Further, introduction of 1 page tax returns for small tax payers having no business income is a welcome step for ensuring that they are able to comply easily.  When this scheme is combined with the presumptive tax scheme for the business and profession, I would feel that major steps have been taken for simplifying the tax compliance.

However, when the fine print is seen, we may be able to see as to how these benefits will be actually available.  Further, there was a dire need to making procedural amendments, which we will see only when we see the Finance Bill.  Further, very peripheral changes appear to have been done for giving boost to the startups, leaving aside some major issues concerning the startups like ESOP taxation and other related areas.  Further, no other non-tax related measures have been announced to give a fillip to this sector.  For creation of the conducive environment for nurturing the startups, lot of measures and change of thinking is required, which I feel seem to be lacking in successive budgets.

From non-tax perspective, the major thrust for investment in the infra-structure spending, like railways, roads, ships and airports would go a long way in bridging the gap India has on these areas with other countries and would also transfer the money to the needy section of the society.

Interesting twist, provisions for the secondary adjustments introduced for the transfer pricing.  Further, thin capitalization in way of limiting the deduction of interest also introduced as part of the transfer pricing provisions.

Income from sale of carbon credits taxed at the concessional rate of 10 %.  However, removes the benefit of it being treated a capital receipt.

With respect to the MAT on the IndaAS compliant company, the suggestions of the MAT – IndAS Committee verbatim accepted by making amendment to Section 115 JB of the Act.

Powers to make assessment post search U/s. 132 extended to a period of 10 A.Y. immediately preceding the PY in which the search took place.  This period was 6 years prior to the proposed amendment.  However, the said powers can be exercised only if the income escaped exceeds Rs. 50 lacs for such year.

The draconian (and in a way useless) provisions of Section 197 (c) of the Finance Act 2016 dealing with taxing the income of the earlier period in the year of issue of notice U/s. 143 / 148, etc. removed and rightfully so".  

"The reduction in rate of tax to 25 per cent for SME and reducing the slab rates for individuals are welcome. Further abolition of FIPB and pushing transparent political funding of political parties is welcome. The government has also responded to Start Up companies by giving tax holiday for three years within a period of seven years is positive. Further the non application of Indirect transfer to FPI investors and clarifying lower rate of 5 per cent tax to Masala bonds is encouraging".

" The Union Budget 2017 presented by Finance Minister Mr Arun Jaitley today (February 1, 2017) is a bold and growth oriented Budget and focuses on 10 very important themes including investment in infra (railways, roads and airports as well as others), rural economy, poor, education, etc. and focuses on transparency and makes push towards Digital economy. 

While corporate tax rates have remained unchanged, the Budget gives major relief to SMEs (with turnover up to Rs.50 crores) by reducing basic tax rate from 30% to 25%. About 6.76 lacs (96% of SMEs) are covered by this tax relief. 

No tinkering in capital gains period for listed securities (keeping long term period as 1 year) has given a major needed relief to stock markets. Long term period for immovable properties (land and building) has been reduced from 3 to 2 years - welcome move.

Interestingly, contrary to belief, there are no changes in excise and service tax rates (as I understood from the speech) considering that GST is moved to July 1, 2017 at the earliest. This will be an interim relief till GST comes into force. 

On international tax front, tax withholding on interest on account of ECBs and Masala Bonds to non-residents has been kept at 5% by extending the period up to June 30, 2020. This will decrease cost of borrowings for Indian corporates where the payment is on net of tax basis. Also as per BEPS Action 4, interest payment to a non-resident AE has been capped at 30% of EBIDTa if amount is more than R.1 crore.

Overall, this is bold and growth oriented budget and should take Indian economy to growth trajectory."

"As he began his speech on the key tax provisions, the FM highlighted the abysmal level of tax compliances across tax filers which indicates the monumental effort required to increase compliance and broaden the tax base, one of the 3 key challenges identified by him, the rest being reducing tax rates and improving tax administration.

The FM made sweeping changes in taxation of capital gains from immovable property, with significant changes in the indexation rules, broadening of options for capital gains reinvestment and most importantly, reducing the holding period from 36 to 24 months. Coupled with clarity on taxation of joint development agreements, these measures would give a fresh fillip to the real estate sector that is reeling on account of delinquency and lack of demand.

To assuage the anxious foreign portfolio investors, the application of the much-feared provisions of indirect transfers in the case of Category I and II investors have been exempted, resting the controversy created by the CBDT Circular. While the expectation from this Budget were very large, the FM did not touch upon dropping of headline tax rates, which would be critical for India to become a global competitive economy, a statement that he himself had made in the run-up to the Budget."

"Announcement to reduce the corporate tax rate for MSMEs to 25% is a line with the stated road-map for reduction of corporate income tax rates in India and is welcome announcement.  Reduction in the period of holding of immovable property for long term assets to 2 years and extension of benefit of 5% withholding tax rate on interest on ECBs and Masala bonds to 2020 shall provide much needed impetus to the Indian Real Estate and Infrastructure industry.  Reduction in the time limit for filing tax returns and completion of tax assessments, is a positive step towards improving the tax administration and expediting the grant of tax refunds to corporate India.  However, absence of any announcement on tax incentives for large corporate tax payers in India is a disappointment." 

“The FM's statement that GST implementation is tectonic and epoch, with limited indirect tax changes and no change in service tax rate underlines their resolve to implement GST in 2017.”

“The indirect tax structure of the country simulates an obscuring experience in terms of multiplicity of taxes, tax rates, tax periods, threshold limits and endlessly diverse and exponentially multiplying provisions. Budget 2017 laid emphasis on the tax administration honoring the honest. While the much awaited GST is conceivably expected to bring in a uniform experience as well as simplicity to the existing herculean system, the announcements of Budget 2017 focused on fiscal prudence and economic development. 

With the doing away of a distinction between plan and non-planned expenditure, the Hon’ble Finance Minister had an important task of ensuring that the indirect tax collection meets the expected estimates. The Service tax has not been changed but plethora of changes to abatements and exemptions are expected. This is justified as the transition to the GST is evident. The key exemptions which have been trimmed down need to be looked closely. Due to the global economy slowdown, there were fears of various goods been dumped into India and accordingly the customs duty was expected to be increased on several goods. Further, with an objective to boost the manufacturing, excise duty concessions were expected. However, changes to the indirect tax rates have been kept minimal. 

While the budget focused on stimulating growth, promoting digital economy and improving tax administration, it was an average one.”

“Presented in the shadow of the upcoming elections in five States and the eventful last year, the Budget, as expected, has been a people’s Budget. For individual assessees’ the significant reduction in the tax rate (from 10% to 5%) for those with income up to 5 lakh is sure to endear the Government to the middle class. However, the Budget has been a damp squib for the corporate sector in particular, as barring a reduction of the tax rate (by 5%) for smaller corporates with turnover less than 50 crore, there is nothing much to cheer for them as the tax rates remain unchanged with no significant deductions/ exemptions. Strengthening the policy of demonetization and digital economy, the Budget seems to make policy changes – the most significant being a ban on cash transactions above 3 lakh. The narrowing of the scope of scrutiny in relation to domestic transfer pricing to cases where one party enjoys profit-linked exemption and clarification on non-taxability of redemption of shares outside India from the dreaded indirect tax provision seems to be the only silver lining. The real estate sector has been offered a much needed helping hand by extending the Affordable Housing Real Estate Scheme period from 3 to 5 years, reducing the holding period for long-term capital gains from 3 to 2 years, and by requiring payment of income tax by landowners under a JDA only on accrual of revenue/built-up area. The Government also reiterated its commitment to ‘Make in India’ by extending income tax benefits for startups, increasing allocations for domestic manufacturing schemes such as MSIPS, and rationalizing Customs and Excise rates. On the much-awaited GST and its date of implementation, the FM gave it a miss, except affirming the commitment of the Government to see GST through in “consensus” with the State Governments.”

“The Hon’ble Finance Minister, Shri. Arun Jaitley presented his fourth Union Budget in the Parliament today, as per the schedule, that aimed to boost spending, as he sought to lift growth and ease people’s pain from the government’s drive to purge the economy of “black money”. This Budget differed from the past Budgets in a number of ways, important being that the Budget speech was delivered on February 1 instead of February 28 and there was not separate Railway Budget this year. 

Addressing parliament, Mr. Jaitley called his fourth budget one for the poor. Yet, while asserting prudent fiscal management, he also raised his 2017-18 federal deficit target to 3.2% of GDP to cover his spending promises. Mr. Jaitley started his speech by saying, “The Govt. is now seen as a trusted custodian of public money, I express gratitude to people for their strong support.” He called India "an engine of global growth", but at the same time, highlighted risks to its outlook from likely U.S. interest rate hikes, rising oil prices etc. 

Passage of GST Bill and demonetisation were highlighted as the two tectonic policy initiatives of the Government. As GST is on the anvil, not much changes are proposed to be made in Service tax and Excise, though Service charges on e-tickets booked through IRCTC has been withdrawn. Mr. Jaitley stated that the GST Council has finalised its recommendations on almost all the issues based on consensus on the basis of 9 meetings held. Further, preparation of IT system for GST is also on schedule and the extensive reach-out efforts to trade and industry for GST will start from April 1, 2017 to make them aware of the new taxation system.”

"The Budget proposals reflect the consistent continuation of the broad policy objectives of this government like fiscal transparency, affordable housing, start-ups, digital India etc. It is heartening to note the emphasis on infrastructure development with record budgetary allocation for the sector and the decision to introduce dispute resolution provisions for PPP projects through an amendment to the Arbitration and Conciliation Act, 1996.

Given the sluggish state of real estate sector which was further impacted by demonetisation, the significant widening of the tax benefits for affordable housing should stimulate the sector and contribute to employment generation.

With GST now in sight, the government’s decision to make minimal changes in indirect tax provisions was on expected lines – nonetheless, a little more detailed update on the progress apropos GST implementation would have been ideal. However, given the avowed emphasis of ‘ease of doing business’, one had expected changes like relaxation of CENVAT Credit regime for wider credit availment, reverting to status quo apropos service tax on ocean freight and tour operator services – while the fine-print needs to be examined thoroughly, these aspects do not seem to have been addressed.

The reduction in Customs duty for LNG is a welcome move and should prove to be beneficial for the LNG players as well as user industries – this is particularly important since LNG is not expected to be covered within GST leading to concerns of tax cost increase for the sector."

“The mantra for the Union Budget for FY 2017-18 is to “transform, energise & clean India- TEC India”, to build a stable, cleaner and a stronger institution. The FM in his speech announced that the Government is committed to encourage growth while ensuring that the tax rates are reasonable, tax base is expanded and the tax administration is fair. 

From an Indirect Tax standpoint, the FM stated that not too many changes have been made in the current Central Excise and Customs laws as the same would soon be phased out on account of the impending GST regime. However, certain proposals such as reduction/rationalization of Customs and Excise duty rates in respect of certain goods have been provided for to give impetus to the Make in India Scheme and address the issue of inverted duty structure. Also, certain exemptions from Basic Customs Duty, Excise Duty and Countervailing Duty have been proposed in respect of goods such as scanners, finger print readers, micro ATMs etc., and parts thereof so as to encourage domestic manufacturing.     

On the GST front, the FM thanked the Parliament for passing the Constitution (One Hundred and Twenty Second Amendment) Bill, 2015 unanimously and updated the House on the progress of the same. The FM announced that the GST council after deliberations have finalised its recommendations and with effect from April, 2017, the Government would reach out to the trade and industry to appraise them of the finalised GST structure. While the FM mentioned that the introduction of GST is on schedule, however, no commitment has been made as to the date of introduction of GST.  

While the exact impact of the Union Budget 2017-18 can only be assessed upon examining the fine print, certain changes such as abolition of the Foreign Investment Promotion Board, announcing a liberalized Foreign Direct Investment policy to ease investments, promotion of digital economy – digital payments (BHIM app), merging tribunals wherever appropriate, confiscation of assets of economic offenders etc., appear to be critical for businesses.   To sum up, Budget 2017 is a booster budget and would positively affect infrastructure, real estate, electronic manufacturing and banking and financial sectors. “

Transform, Energize and Clean India – FM’s Vision 

Amidst various challenges in the economy both global and India, the Finance Minister through his today’s speech ensured that there is overall development of every sector as well as people from every strata of the society. For such overall development, the Finance Minister formulated that there is adequate support in terms of reframing polices, amending laws, allocation of funds for social as well as infrastructure development schemes institutionalized by the Government. 

It was pleasing to see Mr. Arun Jaitley acknowledged efforts put in by the GST council and States for progress made and for resolving the pending issues in making GST a success. 

Overall, the Finance Minister laid ground rules for tax administration wherein he specifically highlighted points such as transparency, simplification, digitalisation, acknowledging the honest tax payers in order to provide an efficient tax structure. 

Keeping ‘Make in India’ at the forefront, various policy changes as well as tax benefits are doled out to start ups as well as MSME and SME’s. Further measures such as reduction of Excise and Custom duties, extended MAT credit, abolishing of FIPB, new FDI policy and resolving the problem of inverted duty structure in few sectors will support the vision. 

For the bleeding Real Estate sector, announcement of measures such as ‘grant of infrastructure status’, reduced Capital Gains and introducing policies for affordable housing will boost the demand. 

To enhance transparency, the Government has again relied on digitisation path by both imposing restrictions on cash expenditure, cash donation to political parties as well as providing incentives such as removing customs duty on parts used for manufacture of POS Pre, Micro ATM, scanner machines etc and by removing service charges on train e-reservations. 

The merged budget i.e. Railway and fiscal also proposed introduction of new metro rail policies, laying down of new railway tracks for 3500 KM and increase in capital expenditure for Railway Sector.

"Key theme of Direct Tax amendments in this Union Budget is “less-cash economy” whereas for Indirect Tax it is “smooth migration towards GST”. 

The Finance Minister has been courageous to bell the charitable institutions and political parties by limiting the amount of donation that can be made in cash to such organizations to INR 2,000.  Specially the amendment related to Political Parties will not only reduce the avenues of parking black money but will also enormously reform the electoral process. 

Reduction of tax rate to 25% for the companies having turnover up to INR 50 Crores is yet another welcome measure and will immensely benefit small and medium sized companies. 

From the Indirect Tax standpoint, the Finance Minister has rightly refrained himself from increasing the Service Tax rate and announcing major amendments in the view of upcoming GST."

“The revenue receipts for 2017-18 are estimated considering a modest growth of 8 per cent in the indirect tax collections, with customs growing at 11 per cent, central excise at 5 per cent and service tax at 10 per cent.  Central excise collections growth is more than 25 per cent in the revised estimates for 2016-17.

Not many changes in indirect tax laws and no tinkering with peak rates is good news.

The agenda for next year, “Transform, Energise and Clean India”; one of the themes “Tax Administration: honouring the honest” and desire to bring reforms in tax administration in the form of an approach of RAPID (Revenue, Accountability, Probity, Information and Digitisation) is encouraging.  Effort to try to bring in maximum use of Information Technology to remove human contact with assesses as well as to plug tax avoidance is good move.

From April 1, 2017, the extensive reach-out efforts to trade and industry to make them aware of the new GST system will start.

Research and Development Cess would be abolished effective from April 1, 2017.”

"Overall the Union Budget, 2017 is a populist budget with no significant changes in indirect tax laws. In presenting indirect tax proposals, the Finance Minister seemed to be influenced by two key events viz. pressure on Indian economy due to demonetisation, and impending GST reform. 

The industry anticipated an increase in rate of service tax to 18 percent to bring the same in line with GST. This would have been retrograde and led to inflationary pressures on economy. Balancing the scales, the Finance Minister placed his cards well and maintained a staus quo on rate of service tax. 

In general, median rates of excise duty and customs duty have been kept intact. Certain changes have been proposed in the customs and excise duty rates to incentivise ‘Make in India’ Scheme by reducing duties on raw materials & consumables, promote cashless transactions through grant of exemptions on point of sale devices including their parts, rationalise duty inversion prevailing for certain products etc. 

In a positive move, the Reasarch and Development Cess (‘R&D Cess’) levied under Research and Development Cess Act, 1986 has been proposed to be repealed. Presently, R&D Cess of 5 percent applies on technology payments like royalty, technical know how fee etc. and becomes an additional cost. 

While the industry expected clear timelines on GST implementation, the budget failed to provide the roadmap. With no changes made to the present indirect tax laws, the industry now eagerly awaits for GST. "

With indirect taxes due for an overhaul with the proposed implementation of GST in next few months, amendments in the prevalent indirect taxes (i.e. service tax, excise, etc.) were restricted.

Under Excise Laws, apart from the an increase in tax rates of tobacco and cigarrates, exemptions have been announced for promoting manufacture of digital electronic machines like finger print readers, iris scanners etc. Further under service tax R&D Cess is proposed to be repealed.

Few changes in the basic customs duty rates have been announced, notably a change in BCD rates for LNG from 5% to 2.5%. The slashing of BCD rates in LNG would certainly boost government’s commitment towards clean energy. Changes in other BCD rates have also been announced in order to correct the problem of inverted duty structure in many industry. Further, new set of exemptions have been announced for promoting manufacture of digital electronic machines like finger print readers, scanners etc.  

As regards GST, FM mentioned about preparedness of GST IT backbone (GSTN) is right as per schedule.  The Budget also was extremely positive about GST and has promised to launch a mass outreach program to make the people aware about GST and its nuances.  Further, the FM mentioned that they would continue to “strive” to achieve the goal of implementation of GST as per the schedule.

It may be stated that the industry at large were expecting lot more from the Union Budget, especially a detailed road map and commitment on the implementation of GST in India and to this extent the industry will now look forward for more clarity in the coming GST Council meeting (scheduled on 18th February 2017).

On an overall basis this Budget only seems to be an pre-cursor to GST which is yet to be announced in the near future.”

"This focus of the budget, post the demonetization wave of 50 days, was to drive the economy towards digital payment and reduce cash transactions. This is a very positive development and would augur well for the increased disclosure and compliance. The other budget proposals are given below: 

Tax Rates: 

• Corporate tax rate reduced to 25% for companies with a turnover of less than INR 500 million (in FY 2015-16). No other reduction in MAT and corporate tax rates
• Relief in tax rates for individuals earning income less than 5 lacks as rate is reduced from 10% to 5%
• MAT / AMT credit allowed to be carried forward for 15 years (from existing 10 years) 

Real Estate Sector: 

To promote the real-estate sector the period of holding for land and building (to qualify as a long-term capital asset) has been reduced from 36 months to 24 months. Further to promote development of affordable relaxation in conditions provided to persons engaged in development and building housing projects. The relaxation is in terms of the carpet area to be considered for the 4 metro cities as against the build-up area earlier and the period for completion of the project is increased from 3 to 5 years 

Joint Development Agreements(JDAs) – relaxation of capital gains on deemed transfer of immovable property in JDAs

• Incidence of capital gains deferred to year of completion
• Stamp duty value of share in project as on date of completion plus any cash consideration received to be the full value of consideration
• If share in project transferred before completion normal capital gains taxation will apply in the said year of transfer 

Transfer Pricing: 

1. It is proposed that where a primary transfer adjustment has been made in the case of the tax payer: 

• either in the return of income;
• or made by AO and accepted by assessee;
• or is determined in APA/MAP;
• or made as per safe harbor rules 

and the money has not been received within the prescribed time a secondary adjustment would be made in such cases and the moneys would be deemed to have been advanced by the tax payer to the AE and interest would be charged on such advance.  Such secondary adjustment can be made only if the amount of primary adjustment exceeds Rs. 1 Cr. This is applicable from FY 2016-17 onwards 

2. Transactions between two domestic related parties is now outside the scope of domestic transfer pricing. This is a good amendment proposed from FY 2016-17 onwards. 

3.Interest paid by an Indian company, or a PE of foreign company to its overseas associated enterprise exceeding Rs. 1 crore will not be allowed as deduction in its entirety in the year of incurring the expenditure. Such deduction will be restricted to the amount given below

The interest paid to any third-party lender (and guaranteed by the AE of tax payer) will also be subject to restrictions discussed below 

• The deduction of interest would be restricted to the lower of the following:

          i.   Interest paid or payable; or

         ii.  30% of amount of EBIDTA (Earnings before interest, taxes, depreciation and amortization) 

The interest paid but disallowed, in the year of incurring the liability, will be allowed to be carried forward for next eight assessment year and the mechanism for allowance in the subsequent years will be as discussed above. 

The above disallowance mechanism does not apply to an Indian company, or a PE of foreign company engaged in banking or insurance business.

FIPB to be abolished in 2017-18 -  Roadmap for the same to be announced together with further liberalisation of the FDI policy. 

Miscellaneous: 

• Transfer of Masala bonds (rupee denominated) between non-residents not liable to capital gains
• Base year for computing cost of acquisition and improvement changed from 1981 to 2001
• Gains on transfer of unquoted equity shares to be calculated based on FMV – in case consideration received is lower than FMV
• Conversion of preference shares to equity not liable to tax
• The ambit on taxability of receipts without adequate consideration is expanded to cover all assesses and all asset classes (including shares of listed entities)
• The time limit for completion of assessments proposed to be reduced in respect of:
  • AY 2018-19: to 18 months from 21 months
  •  AY 2019-20: to 12 months from 21 months"

“Domestic transfer pricing simplified, Cash expenses limit reduced to Rs.10000; Political party donations restricted to Rs. 2000 and no cash transaction above Rs.3 Lacs a welcome move.”

"On an overall basis, the Finance Minister has delivered a mature budget towards fiscal consolidation. Staying on course with the Fiscal Deficit target of 3% is a commendable achievement given the need to huge public spending and spurring growth in the backdrop of demonetization.  As expected, the biggest beneficiary is the rural economy and infrastructure sector.

Several measures are being announced on ease of doing business in India and doing away with FIPB is a big and bold step towards that. Hopefully the new mechanism to be brought in would be less bureaucratic.

On the tax side, the biggest plus is the reduction in headline tax rate to 25% for corporate SMEs with turnover of less than Rs. 50 crores in FY 15-16. This provides an opportunity for these SMEs to grow to size beyond Rs. 50 crores and yet retain the 25% tax rate benefit. Other corporates who were looking at similar reduction would be disappointed. However the bigger disappointment is that this benefit of lower tax rate of 25% is not extended to firms, LLPs and other classes of tax payers. There are several SMEs tax payers that operate as non-corporates (especially in recent years several companies have converted into LLPs) and should ideally be covered by the reduced tax rate. Another disappointment could be no reduction at all in the MAT rate with the consequence that there is hardly any difference between the corporate tax rate and MAT rate.

Tax payers were also eagerly looking forward to abolishing ICDS and deferral of POEM regulations. Neither of this has been addressed by the Budget.

The reduction in tax rate for taxpayers in Rs 2.50 Lakhs – Rs. 5.00 Lakhs slab seems to be a move to reward the salaried and middle class tax payers who had wholeheartedly supported the Govt on demonetization. They would be tad disappointed with this minor relief.

FPIs have gained from this budget and the indirect transfer provisions would not be applicable to the investors of Category I and II FPIs with retrospective effect from AY 12-13. Also, the 5% withholding tax on interest on rupee denominated bonds and ECBs is being extended till 30^th June 2020 thus protecting the Indian debt market from possible Federal rate hike in USA. Apprehension on changes in Capital Gains for listed securities proved to be unfounded though Govt is expected to gain on capital gains side due to revision in tax treaties with Mauritius, Singapore and Cyprus.

Several reforms measures were announced to address the black money and cash economy menace primary being cleaning up the political funding. It shows that the Govt is ready to walk the talk on cleaning the economy. Digital and banking payments are encouraged and the cash transactions are discouraged though there is no BCTT introduced. Some measures were announced to give boost to real estate sector and at the same time making housing affordable. 

The statistics mentioned by FM on the compliant tax payers in India were revealing though it was an open secret that large section of tax payers were able to escape taxes. The thrust of the tax administration is to bring these non-compliant people in the tax net through “Operation Clean Money” which was launched just a day before the budget and would heavily rely on data analytics. 

Several amendments were brought in to clarify controversial aspects which were under litigation and thus we can see some further reduction in litigation. Even on the MAT calculations has been brought in line with IND-AS.

On Indirect tax side no major changes are announced and it re-emphasizes that the introduction / implementation of GST is near. "

“The budget presents a transformative agenda with continued emphasis on emphasis on poverty alleviation, infrastructure, digitization, targeted delivery of benefit schemes and facilitating ease of doing business. While bereft of any big bang reforms, the retention of the indirect tax tax rates and the reduction of tax rates for marginal individual taxpayers and MSMEs pushes forward the reformist agenda with reiteration of the commitment to lower corporate tax rates within the assured timelines. Recognising the turbulence in the global economy and lack of large scale private sector investments, the Budget wisely pegs the fiscal deficit at 3.2% of GDP thereby allowing public sector investments. Measures to promote digital economy and to bring transparency in relation to political funding signifies the Government’s resolve to usher in transparency and continued war against black money and corruption. 

FPIs could breathe easy now since they have been exempted from the application of indirect transfer related taxation. Similarly, Indian corporates contemplating overseas fundraising would be thrilled since the concessional taxation regime for ECBs and Masala Bonds have been extended till June 2020. Restriction in the scope of domestic transfer pricing provisions shall ease the cost of compliance and tax administration. At the same time, introduction of thin capitalization and secondary adjustments under transfer pricing provisions is expected to ensure multi-national entities not to indulge in aggressive tax planning.

With the impending implementation of the Goods and Services Tax, the indirect tax specific changes are limited to correcting the inverted duty structure; clarifying some existing tax positions and repealing the Research and Development Cess Act . The proposal to have a single Authority for Advance Rulings also augurs well for the future provided the vacancies are filled and additional benches are set up at the earliest.” While the Finance Minister has provided a status update with respect to the implementation of the proposed Goods and Services Tax; he has refrained from providing any specific timelines. There does however appear to be an underlying text that the new legislation would not see the light of day on April 1, 2017 as the Government proposes to start its training and awareness initiatives in tandem with the new financial year."

Co-authored by Mekhla Anand (Partner)

"From the direct tax perspective, this budget has brought many important amendments. Introduction of Thin Cap rules and secondary adjustment are quite significant one. Thin cap rules are almost akin to German thin cap rules and is likely to impact the inbound companies funded through loan.

In case of secondary adjustments, it will be interesting to see how the ‘excess money’ is repatriated to India. If the  ‘excess money’ is treated as constructive dividend, India  would tax that only once and may have allowed set off against payment of domestic dividend. However, as per the proposed provision, such ‘excess money’ appears to be taxed as ‘interest on advance’ which means it will be taxed year on year basis. Apart from that this unilateral adjustment may not be accepted by the foreign jurisdiction. Finally it will also be interesting to see, whether India will allow a tax sparing credit on such remittance wherever applicable eg, Cyprus.

Extension of MAT credit set off period is definitely a welcome provision. Practically, not many companies will remain in MAT in future considering phasing out of R&D and profit linked incentives. Provision of set off of loss of another unit against profit of SEZ units of the same assesse will not allow the carry forward of the loss while giving SEZ deduction to SEZ unit simultaneously. Necessarily, such loss should be set off against profit of SEZ unit and cannot be carried forward as such. This amendment will impact SEZ units claiming deduction u/s 10AA.

Domestic transfer pricing provisions will be applicable mainly to the transactions by/with SEZ / Ch VIA special units. It is a welcome move.

Anti abuse measures include limiting exemption of long term capital gain only if the shares are acquired after 1^st Oct,2014 and STT is applicable. However, certain genuine cases are kept out from the ambit of this provision such as acquisition of shares in IPO, FPO, bonus or right issue etc. Shares issued by way of ESOP , preferential allotment are not part of the exemption list. Hopefully, relief would be given to ESOP and preferential allotment issues before the Bill becomes Act.

Set off of loss from house property against any other heads of income is restricted to Rs.2 lakhs. For example, loss arising from Interest on loan taken for construction of property which is let out is capped at Rs.2 lakhs while setting off against other head of income, say salary. This will impact many house owners in particular and the real estate sector in general.

On an overall basis, this budget has a far reaching impact both on the corporate and individual."

“Even though the budget seems a populist one, the FM must be commended for sticking to the Fiscal deficit target of 3.2% of the GDP. The focus on infrastructure, job creation, digital economy and continuing seriousness to tackle black money sticks out of the 10 themes which the budget has focussed on. The tax proposals are largely positive, with no major negative surprises, however some valid expectations has not been paid heed to. A major relief to startups in form of eligibility to carry forward losses was something which will become relevant now, considering start-ups are becoming prudent in spending and focussing on becoming profitable. For foreign investors, abolition of FIPB and further opening of sectors of the economy is good news. Foreign Portfolio investors can breathe a sigh of relief and now they have reasonable certainty to all the key aspects like MAT, issues in categorization of income viz. capital gains vs business income, GAAR and tax on Indirect transfer provisions. The tax relief for the common man and SMEs is welcome positive as they have suffered quite a lot in demonetization. The biggest relief has been no change in holding period and the tax rate for equity investors. In fact, unexpectedly the holding period for immovable property has been reduced to 2 years.”

"This Budget is integrating all the initiatives and 10 themes into TEC-India which is Transformed, energized and Clean India. Structural Reforms with digitization of Currency and Public Services will bring new era of transparency in Governance. Tax Administration will be made more Tax Payer Friendly is a welcome move in view of upcoming GST. Rewarding Small and Salary Tax Payers and levying surcharge on High Networth Individuals beginning from INR 50 lac income is also a wise move of Hon'ble Finance Minister. Important aspect is holistic approach towards mode of transport i.e. Rail, Road, Air and Inland Water ways with the use of robust public private partnership, will unleash infrastructure growth. Education and Healthcare has not be left out and greater thrust has been made towards access of post graduation courses in Medial Sector. More autonomy and digitization to Educational Institution and merit based accreditation will improve the condition of higher education in the country. Focus on spreading BHIM app and launching Aadhar enabled payment system for merchants will unlock huge growth for funding and financial inclusion in this largely unorganized space. Digital Data mining will curb tax evasion and discouraging Cash payments in the system will improve capability of tracking and punishing intentional tax evasion and non-declaration. GST readiness and awareness campaigns from April 2017 onwards clearly shows that we will see GST becoming reality in second half of this year as one of the biggest tax reform. Doubling up farmer’s income, relaxing norms on affordable housing society, Tax relief for middle class and giving relief to startup India are the welcome move to make the Budget full of rewards for the Bottom of Pyramid. At the same time, more thrust on private investment, liberal FDI regime and phasing out FIPB will ensure easy access of funds to the large corporate sectors in the country who is equally important to take the Nation into the new orbit of growth. I expected more benefits for the Startup-India, Skill India and Logistics and Warehousing Sector, so need to go back to the fine print and Notifications. On Overall basis I would rate this budget 8.5 out of 10."