SKP Budget Primer
3 February 2015 | Budget 2015 | Volume 1

The Union Budget 2015-16, has expectations soaring with tax reforms such as GST set to take centre stage. The industry is optimistic that this Budget will feature business-friendly policies that will reform the Indian business scenario. Finance Minister, Arun Jaitley is charged with the colossal task of presenting a Budget that meets the sky-high expectations of the industry.

To keep pace with this much awaited event, SKP brings to you a series of Budget Primers where we will share our Budget Wish List over the next few weeks. We hope you find them interesting and useful. We look forward to your feedback. 

SKP Direct Tax Wish List
A. Corporate Taxation
Computation of taxable income
  • The rate of Minimum Alternate Tax (MAT) should be reduced to 10% from the existing rate of 18.5% for Micro and Small Enterprises (MSMEs), Special Economic Zone (SEZ) developers and and units in SEZs.
  • Goodwill arising on amalgamation should be made eligible for depreciation in accordance with the judgment of the Supreme Court of India. 
  • Tax treatment of Corporate Social Responsibility (CSR) expenditure should be explicitly clarified in the law, though the intention of the government appears to consider CSR expenditure as not tax deductible.
  • Payment of employees' contribution to provident fund should be tax deductible if it is paid till the due date of filing the return of income, similar to the payment of the employer's contribution to provident fund.
  • Provisions relating to taxation of excess premium received for shares issued to Indian tax residents should be liberalised since valuation is a highly subjective exercise. 
  • Indirect transfer of shares of a foreign company by a non-resident attracts tax in India if the shares transferred derive 'substantial' value from assets located in India. The term 'substantial value' should be clearly explained in the law.
  • Assets costing less than INR 5,000 should be allowed as revenue expenditure.
  • To support the automobile sector, accelerated depreciation should be allowed for motor vehicles.
  • It should be explicitly clarified that surcharge and education cess will not be levied on tax rates provided by the Double Taxation Avoidance Agreements (DTAA).
Tax incentives:
  • The present limit of investment in plant and machinery of INR 250 million for claiming Investment Allowance should be reduced to INR 100 million to provide benefits to small manufacturers.
  • Income based tax benefits should be provided to MSMEs, in the first three years of operations.
  • Currently, the conversion of a company into a Limited Liability Partnership is tax neutral if the turnover of the company in any of the last three years does not exceed INR 6 million.  This limit of INR 6 million is too low and should be increased to INR 50 million.
  • The rate of tax for royalty and fees for technical services should be reduced to 15% from the existing rate of 25% to bring it in line with most of the DTAA entered into by India.
  • Weighted deduction for expenditure on scientific research should be deductible for computation of MAT.
TDS (Withholding tax) related measures:
  • The threshold for TDS deduction on commission should be increased to INR 30,000 from the existing limit of INR 5,000.
  • The liability to deduct TDS should not be attracted on the provision for expenses created during the year for management reporting purposes.
  • In cases where payments are made during the year without deduction of TDS, certain Courts have held that the relevant expenditure cannot be disallowed. The legislative intent in this regard should be explicitly clarified.
  • The time limit for filing of TDS returns should be extended to one month from the end of the quarter as against the present time limit of 15 days from the end of the quarter.
  • Interest on delayed deduction/deposit of TDS should be calculated on a 'number of days' basis instead of calculations on a monthly basis.
  • For payments made outside India after deduction of TDS, a mechanism should be provided for generation of TDS certificates in cases where the receiver does not have a Permanent Account Number (PAN).
  • Presently, if the TDS is not deposited by the deductor or is not correctly in his TDS returns, credit for TDS is not allowed. A mechanism should be laid down wherein the taxpayer can compel the deductor to deposit the TDS or rectify its TDS returns.
B. Personal Taxation
  • Standard deduction should be re-introduced for salaried employees.
  • Present exemption limits for allowances such as conveyance allowance, children education allowance, etc., are too low and should be suitably increased.
  • Deduction of interest on borrowed capital for self-occupied house property should be increased to INR 250,000 from existing limit of INR 200,000.
  • The limit for deduction under section 80C should be raised to INR 200,000 from the existing limit of INR 150,000.
  • The exemption for leave travel concession should be provided once a year, as against the current exemption of two visits in four calendar years.  The term 'calendar year', here, should be replaced by 'financial year'.
  • Section 80GG provides deduction for rent where the taxpayer does not avail the House Rent Allowance. The limit of deduction under section 80GG should be increased to INR 10,000 per month from the existing limit of INR 2,000 per month.
C. Other aspects
  • Sections 269SS and 269T should explicitly clarify that loans/deposits given through electronic modes of transfer (e.g. RTGS, NEFT) and genuine transactions of loans and deposits given/settled through book entries should not be liable for penalty.
  • Basic exemption for wealth tax should be increased from INR 3 million to INR 10 million.
  • Motor vehicles used for business purposes should be exempted from wealth-tax.
  • A time limit should be set for disposal of appeals by the Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal and for passing orders for giving effect to appellate orders.
  • Filing the return of income using a digital signature requires physical token of the digital signature. This process creates administrative hurdles and a suitable mechanism should be provided to ease this difficulty.
  • Foreign companies, which do not have a bank account in India face difficulties in obtaining tax refunds. A mechanism should be introduced to enable these companies to receive tax refunds in their overseas bank accounts.
  • Threshold limit for filing applications for Advance Ruling for resident taxpayers should be reduced to INR 500 million from the existing limit of INR 1 billion.
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This SKP Budget Primer contains general information existing at the time of its preparation only. It is intended as a news update and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This budget primer is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and also refer to the source pronouncement/documents on which this budget primer is based. It is also expressly clarified that this budget primer is not a solicitation or an invitation of any sort whatsoever or a source of advertising from SKP Group or any of its entities to create any adviser-client relationship.

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