SKP Budget Primer 2016-17
| Budget 2016 | Issue 1
 With the global economic slowdown and need to maintain a balance between fiscal prudence and economic reforms, India's Finance Minister, Arun Jaitley, has the daunting task of meeting huge expectations from companies and individuals alike. He is likely to be cautious, which is evident from the fact that the steep fall in crude oil prices has not been passed on completely to the Indian consumer. However, it is expected that the Budget will bring in several tax reforms to boost exports, encourage start-ups, improve the ease of doing business and attract foreign investments.

To kick-start our coverage of the Union Budget 2016-17, SKP brings to you a series of Budget Wish Lists. We hope you find them interesting and look forward to your feedback. 

SKP Direct Tax Wish List

A. Corporate Taxation
Computation of taxable income
  • The Income Computation and Disclosure Standards (ICDS) should not be applied to taxpayers who are not subject to tax audits. Suitable clarifications on the applicability of the ICDS should be provided.
  • As announced in Budget 2015, the plan for gradually reducing the corporate tax rate from 30% to 25% over the next four years should be implemented from Budget 2016 and a specific action plan and time frame should be released.
  • The rate of Minimum Alternate Tax (MAT) should be reduced to 10% from the existing rate of 18.5% for Micro and Small Enterprises and units in special economic zones (SEZs).
  • 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, as is the case with payment of employer’s contribution to the provident fund.
  • The tax provisions on excess share premium for shares issued to Indian tax residents should be liberalised since valuation is a highly subjective exercise. 
  • The assessee should be allowed to make a fresh claim for the deduction of expenses during assessment proceedings. A specific provision should be inserted in the law to this effect.
  • The provisions of domestic transfer pricing should not be applied in those cases where both the payer and payee are paying tax at a maximum marginal rate.
  • It should be explicitly clarified that for transactions which are not regarded as transfers (for example, transfer by way of gifts, conversion of debentures into equity or conversion of one kind of shares into another, etc.), where the cost of acquisition is considered to be the cost of acquisition of the original asset, the benefit of indexation shall also be available from the date of acquisition of the original asset.
  • The provisions of section 112 providing for tax @10% on long-term capital gains arising to non-residents on the transfer of unlisted securities should be simplified as the interpretation of the current provisions are ambiguous.   
Tax incentives
  • The tax exemption for start-ups as provided in the Start-up India Action Plan should be incorporated in the law and a start-up enterprise should be expressly and clearly defined.
  • The present investment limit of INR 250 million, for claiming investment allowance under section 32AC should be reduced to INR 100 million to provide benefits to small manufacturers.
  • 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 should be increased to INR 50 million.
  • Weighted deduction for scientific research expenditure should be continued beyond 31 March 2017.
  • Sunset dates, proposed by the Central Board of Direct Taxes (CBDT) for phasing out tax holidays available for developing SEZs and setting up SEZ units by an exporter, should not be introduced to boost India’s export sector (which in turn will improve the situation of the Indian economy).
  • The terms ‘goodwill’, ’brand’ and ’non-compete fees’ should be added to the definition of ‘intangible assets’.
  • Extend the sunset clause under section 80IA for the power sector, at least with respect to rural electrification projects, for five more years.
  • Revive deduction under section 80IA for cold storage plants to ensure an uninterrupted supply of food grain and thereby control inflation.
  • Specific provisions should be inserted to support the ‘Make in India’ and ‘Skill India’ initiatives announced by the government.
Tax deducted at source (TDS) related measures
  • The threshold for TDS deduction on different payments should be enhanced suitably.
  • The liability to TDS should not be attracted on the provision for expenses created during the year for management reporting purposes.
  • The specified period for filing 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 daily basis instead of a monthly basis.
  • For payments made outside India after TDS, a mechanism to generate TDS certificates in cases where the receiver does not have a PAN should be provided.
  • An adequate mechanism needs to be introduced to enable the taxpayer to claim correct tax credit in cases where the payer (tax deductor) makes errors in filing tax credit statements.
Other measures
  • The condition of considering foreign companies resident in India if their place of effective management (POEM) is in India, should be made applicable from 1 April 2016 onwards, (as against 1 April 2015) since the final POEM guidelines have not yet been notified.
B. Personal Taxation 
  • The basic threshold for income not liable to be taxed should be enhanced to INR 500,000 from the existing INR 250,000, in line with inflation.
  • Standard deduction should be re-introduced for salaried employees. 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 the existing limit of INR 200,000.
  • Limit for deduction under section 80C should be increased 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. In addition, the term ‘calendar year’ should be replaced by ‘financial year’.
  • The payment of the principal amount for a home loan is currently available as a deduction under section 80C of the Income Tax Act as part of the overall limit of INR 150,000. To incentivise the purchase of a residential house, this should have a separate deduction.
  • Deductions under section 80CCF with respect to investment in infrastructure bonds should be reintroduced with a new limit of INR 50,000 to revive infrastructure development.
  • The defence sector requires continuous investment in high-tech arms and ammunition. A new section providing deductions for investment in defence bonds with a limit of INR 50,000 should be introduced.
  • The presumptive provision contained in section 56 regarding gifts in case the property is purchased at less than the stamp authority valuation is quite harsh and does not take into consideration various other factors such as distressed sale, the locality, condition of the building, etc. This provision needs to be rationalised.
C. Other aspects 
  • A time limit should be set for the disposal of appeals by the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal.
  • The threshold limit for filing applications for an advance ruling for resident taxpayers should be suitably reduced.
  • The advance ruling machinery needs to be substantially strengthened (including the constitution of additional benches) to ensure that the purpose of making application for Advance Ruling is fulfilled in spirit.
  • A time frame should also be provided for passing an effect order to the orders of the appellate authorities and granting of consequential refunds.
  • The tax law administration should be made more taxpayer-friendly.
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This update contains general information which is provided on an “as is” basis without warranties of any kind, express or implied and is not intended to address any particular situation. The information contained herein may not be comprehensive and should not be construed as specific advice or opinion. This update should not be substituted for any professional advice or service, and it should not be acted or relied upon or used as a basis for any decision or action that may affect you or your business. It is also expressly clarified that this update is not intended to be a form of solicitation or invitation or advertisement to create any adviser-client relationship.

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