Budget 2017: Mobilising growth priorities

While Budget 2017 seems to be well thought through and has addressed almost all sectors, it will be interesting to witness its far reaching impact on the projected sluggish industrial growth and whether it propels Corporate India to Spring Forward

By EY
Updated: Feb 7, 2017 04:52:51 PM UTC
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Image: Shutterstock.com (For illustrative purposes only)

On the auspicious day of Vasant Panchami and amidst uproar to adjourn the session, the FM rose to announce the historic Union-cum-Rail Budget for 2017-18. The opening speech had optimistic annotations on uprooting evils of black money prevalent in the Indian economy, Government’s vision of leading from the front and being trusted custodian of public money.

With all industrial sectors still reeling under the deep impact of demonetization, the FM quoting Mahatma Gandhi “a right cause never fails” held positive outlook on absorbing the aftereffects within fiscal year 2017 itself and reaccelerating growth through “Transform, Energize, Clean” India theme.

Before unfolding the tax proposals for 2017, the tax return filing statistics revealed by the FM, courtesy data analytics, though were not startling, but confirmed that India is largely a tax non-compliant society – a first of its kind admission by any FM, till date.

Last year, saw greenfield projects in manufacturing sector getting a 25% corporate tax rate; continuing the frog march towards rationalisation of tax rates, Medium and Small Enterprises having turnover of upto Rs. 50 crore in previous year would be taxed at 25%, a move which is likely to promote innovation and generate greater employment opportunities. To support real estate sector and affordable housing, the period for completion of project has been extended to 5 years from 3 years for claiming deduction. Another significant move has been to substitute “built-up area” by “carpet area” thereby increasing the effective area that would reach the end consumer. Lowering the period of holding from 3 years to 2 years, for computing long term capital gains in case of immovable property including land or building is also a welcome move.

Continuing the agenda to incentivise start-ups and push India towards digital economy the condition of continuous holding of 51% voting rights for carry forward of losses has been relaxed provided original promoter/ promoters holding continues. Profit linked exemption has been extended to 3 out of 7 years (instead of current 5 years). Another bold move is accepting the recommendation of Special Investigation Team formed on black money that no transaction above Rs. 3 lacs in cash would be permitted subject to exceptions. It is also proposed to amend S 80G to provide that no deduction shall be allowed on donation of any sum exceeding Rs 2,000 unless such sum is paid by any mode other than cash.

Budget 2017 encapsulates announcements to promote ease of doing business in the country. The scope of domestic transfer pricing has been restricted to only if one of the entity involved in related party transaction enjoys specified profit-linked deduction.

Section 10AA amendment, which applies to units operating in SEZ’s overrules the SC judgement according to which exemption could have been claimed at the threshold of computation. Now, total income needs to be computed as if exemption is ignored and thereafter exemption is to be applied. Carbon credit sale would be taxed at 10% and argument that the same is capital receipt can no longer be taken.

The time period for revising tax return is lowered to 12 months from completion of financial year, at par with the time period for filing of return. Reaping benefits of computerization, time for completion of audits has been compressed from 21 months to 18 months for Assessment Year (AY) 2018-19 and to 12 months for AY 2019-20 onwards.

The long standing industry demand for abolition of Minimum Alternate Tax (MAT) regime has not found favor with the FM, however the period for carry forward of MAT paid has been extended to 15 years.

While Budget 2017 seems to be well thought through and has addressed almost all sectors, it will be interesting to witness its far reaching impact on the projected sluggish industrial growth and whether it propels Corporate India to Spring Forward.

- By Rajiv Chugh, Tax Partner, EY India and (additional contribution) Ankur Singla, Director, Tax & Regulatory Services. Views expressed are personal.

The thoughts and opinions shared here are of the author.

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