Union Budget, 2015 – Direct Taxation
Indian Merchants’ Chamber
C H Bhabha Memorial Endowment Public
Meeting
March 2, 2015
Presented by Ketan Dalal
Table of Contents
Mr. Jaitley speak
The BIG Picture - Hits and Misses
Impact for individual tax payers
Tax rates for corporates – overview
Incentives for manufacturing
Impact for Corporates
Some cross-border tax issues
Capital Markets impact
Other provisions
Move towards cheque economy
March 2015
Slide 2
Mr. Jaitley speak…
“…the world is
predicting that it is
India’s chance to
fly”
“We are banking
the unbanked”
“It is quite obvious that
incremental change is not
going to take us anywhere.
WE have to think in terms of
a quantum jump.”
“We are funding
the funded”
“Minimum
Government and
Maximum
Governance”
March 2015
Slide 3
The BIG Picture – Hits and Misses
•
•
•
•
General
GAAR postponed beyond March 31, 2017
Move towards increased disclosures,
curbing black money and building a
‘cheque economy’
Tax Administration Reform Commission
(TARC) recommendations to be
considered
DTC buried
• Individuals
• Savings incentivised
• Abolition of wealth- tax; surcharge
increased
• Corporates
• Promise to reduce corporate tax rate to
25% over 4 years
• Reduced tax rate of 10% for certain cross
border payments
• Clarity on Offshore Transfers
• Silence on implementation of
Income Computation and
Disclosure Standards
• Reduction in rate of DDT/
credit for DDT
• Reduction in rate/abolition of
MAT (especially for SEZ)
March 2015
Slide 4
Impact for individual tax payers
• Personal taxes – No change in tax slabs / rates
• Abolition of wealth- tax
• Surcharge increased to 12% (from 10%) for income > Rs. 1 crore
- Maximum marginal tax rate increased to 34.61% from 33.99%
• Savings and Investment incentives
- NPS, tax free infrastructure bonds etc.
March 2015
Slide 5
Impact for individual tax payers
• Non-taxable amount could be upto Rs. 5 lacs (approx.)
Particulars
Existing
Additional
Basic exemption limit
2,50,000
-
Deduction for investments
1,50,000
-
Additional deduction on NPS
-
50,000 *
Deduction for medical
insurance
15,000
10,000
Exemption for transport
allowance
9,600
9,600
Total
4,24,600
69,600
4,94,200
Marginal additional benefits extended, with
greater flexibility for investments
* Taxable on withdrawal; Exempt-Exempt-Tax regime
March 2015
Slide 6
Tax rates for corporates - overview
Basic tax rates unchanged, however change in effective tax rates due
to increase in surcharge from 5%/10% to 7%/12%
Domestic Companies
Particulars
Income > Rs. 1 crore <= 10
crore
Income > Rs. 10 crore
FY 14-15
FY 15-16
FY 14-15
FY 15-16
Effective Corporate Tax
32.45
33.06
33.99
34.61
Minimum Alternative Tax
20.01
20.39
20.96
21.34
Dividend Distribution Tax
19.99
20.36
19.99
20.36
Tax rate for LLP (for income > Rs. 10 crore) increased from 33.99% to 34.61%
March 2015
Slide 7
Incentives for manufacturing
• Additional Investment allowance @ 15% and additional depreciation @ 35%
for new units set up in notified backward areas in State of Andhra Pradesh /
Telangana (special units)
- Available in addition to existing investment allowance provision
- Sunset clause – 31 March 2020
Special units
Normal units
Investment in Plant & Machinery FY
2015-16
100
100
Investment allowance (32AC + 32AD)
30 (15+ 15)
15
Additional depreciation
35
20
Normal depreciation@15%
15
15
Total allowance for FY 2015-16
80
50
WDV as on March 31, 2016
50 (100-35-15)
65 (100-20-15)
Depreciation in FY 2016-17 (@15%)
7.5
9.75
March 2015
Slide 8
Impact for Corporates
Offshore transfers
• Following changes introduced:
- Threshold for taxability defined
(10 crore and 50%)
- Value of assets to be FMV
- Proportionate taxation
Part clarity on
unintended
retrospective
amendment
consequences
POEM
•
Residency test changed from “control and
management wholly in India” to “Place of
Effective Management” (POEM)
- Place where key management and
commercial decisions for business of
entity as a whole are in substance
made
Relevance for shell
and conduit outbound
structures
March 2015
Slide 9
Some cross -border tax issues
•
•
Royalty and FTS rates reduced to 10% from 25%
-
Accessing technology becomes easier
-
Will reduce tax costs for Indian businesses
Lower rate of tax on interest on certain cross border borrowings - extended by 2 years
Increased compliance on reporting
requirements for payments to nonresidents
March 2015
Slide 10
Capital Markets - impact
REITs, AIFs and other amendments
REITs/InvITs:
Alternative Investment Funds (AIFs):
• Sale of units by Sponsor during offer for
sale or post listing (subject to STT) - tax
treatment now on par with investors
• Categories extended
• Rental/ leasing income - pass through
status – investors to be taxed
• ‘Pass through’ status to AIF category I and
II with exceptions
Unfinished agenda:
• Dividend Distribution Tax not to apply on
income distributed by the AIFs
• MAT applicability on swap of SPV shares
• Mandatory to file return of income
• Capital gains tax on transfer of property
Other amendments:
• Capital gains of FIIs / FPIs (excluding off-market
short-term gains) excluded from MAT
• Consolidation if certain mutual fund schemes not
regarded as transfer
March 2015
Slide 11
Other provisions
• Deduction (30% of wages) for employment of new workmen
- Benefit extended to all assessees
- Limit reduced from 100 to 50 workmen
• GAAR postponed by 2 years
- Investments made before 1 April 2017, to be grandfathered
- However, judicial GAAR already exists!
March 2015
Slide 12
Move towards cheque economy
• Bill for comprehensive new law to deal with black money – far reaching impact!
- Evasion of tax on foreign assets – upto 10 years imprisonment, 300% penalty,
non-compoundable and no recourse to Settlement Commission
- Non-filing of return/filing without adequate disclosures – upto 7 years
imprisonment
- Prosecution and Penalty exposure for entities, institutions, banks, individuals
• Increased focus on discouraging cash transactions e.g restricting cash advance for
purchase of immovable property >= Rs. 20,000
• PAN mandatory for purchase/sale > Rs. 1 lac
Significant compliance burden; huge
issue for expatriates
March 2015
Slide 13
Some aspects addressed…
but very much an unfinished agenda!
• Intent of non-adversarial regime vis-a-vis on ground
administration
• Too much overlapping legislation and compliance burden
• Dispute resolution etc. is a long haul
March 2015
Slide 14
Thank You!