Budget 2016-17: Key Highlights

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INTRODUCTION

  • Growth of Economy accelerated to 7.6% in 2015-16.
  • India hailed as a ‘bright spot’ amidst a slowing global economy by IMF.
  • Robust growth achieved despite very unfavourable global conditions and two consecutive years shortfall in monsoon by 13%
  • Foreign exchange reserves touched highest ever level of about 350 billion US dollars.

 

CHALLENGES IN 2016-17

  • Risks of further global slowdown and turbulence.
  • Additional fiscal burden due to 7th Central Pay Commission recommendations and an additional burden due to One Rank One Pension OROP.

ROADMAP & PRIORITIES

  • Focus on enhancing expenditure in priority areas of – farm and rural sector, social sector, infrastructure sector employment generation and recapitalization of the banks.
  • Government to focus on:
  • ensuring macro-economic stability & prudent fiscal management.
  • boosting on domestic demand
  • continuing with the pace of economic reforms and policy initiatives to change the lives of our people for the better.
  • ‘Transform India’ to have a significant impact on economy and lives of people.
  • Focus on Vulnerable sections through:
    • Pradhan Mantri Fasal Bima Yojana
    • New health insurance scheme to protect against hospitalisation expenditure
    • facility of cooking gas connection for BPL families
  • Continue with the ongoing reform programme and ensure passage of the Goods and Service Tax bill and Insolvency and Bankruptcy law
  • Undertake important reforms by:
    • giving a statutory backing to AADHAR platform to ensure benefits reach the deserving.
    • freeing the transport sector from constraints and restrictions
    • incentivizing gas discovery and exploration by providing calibrated marketing freedom
    • enactment of a comprehensive law to deal with resolution of financial firms
    • provide legal framework for dispute resolution and
    • re-negotiations in PPP projects and public utility contracts
    • undertake important banking sector reforms and public listing of general insurance companies undertake significant changes in FDI policy.

AGRICULTURE AND FARMERS’ WELFARE

  • Allocation for Agriculture and Farmers’ welfare is 35,984 crore
  • ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission 28.5 lakh hectares will be brought under irrigation.
  • Implementation of 89 irrigation projects under AIBP, which are languishing for a long time, will be fast tracked
  • A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about 20,000 crore
  • Programme for sustainable management of ground water resources with an estimated cost of 6,000 crore will be implemented through multilateral funding.

MULTILATERAL FUNDING

  • 5 lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for production of organic manure will be taken up under MGNREGA
  • Soil Health Card scheme will cover all 14 crore farm holdings by March
  • 2,000 model retail outlets of Fertilizer companies will be provided with soil and seed testing facilities during the next three years
  • Promote organic farming through ‘Parmparagat Krishi Vikas Yojana’ and ‘Organic Value Chain Development in North East Region’.
  • Unified Agricultural Marketing ePlatform to provide a common e-market platform for wholesale markets
  • Allocation under Pradhan Mantri Gram Sadak Yojana increased to 19,000 crore. Will connect remaining 65,000 eligible habitations
  • To reduce the burden of loan repayment on farmers, a provision of 15,000 crore has been made in the BE 2016-17 towards interest subvention
  • Allocation under Prime Minister Fasal Bima Yojana 5,500 crore.
  • 850 crore for four dairying projects – ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds

RURAL SECTOR

  • Allocation for rural sector – 87,765 crore.
  • 87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municipalities as per the recommendations of the 14th Finance Commission
  • Every block under drought and rural distress will be taken up as an intensive Block under the Deen Dayal Antyodaya Mission
  • A sum of 38,500 crore allocated for MGNREGS.
  • 300 Rurban Clusters will be developed under the Shyama Prasad Mukerjee Ruban Mission.

Mukherjee Rurban Mission

  • 100% village electrification by 1st May, 2018.
  • District Level Committees under Chairmanship of senior most Lok Sabha MP from the district for monitoring and implementation of designated Central Sector and Centrally Sponsored Schemes.
  • Priority allocation from Centrally Sponsored Schemes to be made to reward villages that have become free from open defecation.
  • A new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional household within the next 3 years.
  • National Land Record Modernisation Programme has been revamped.
  • New scheme Rashtriya Gram Swaraj Abhiyan proposed with allocation of 655 crore.

SOCIAL SECTOR INCLUDING HEALTH CARE

  • Allocation for social sector including education and health care – 1,51,581 crore.
  • 2,000 crore allocated for initial cost of providing LPG connections to BPL families.
  • New health protection scheme will provide health cover up to One lakh per family. For senior citizens an additional top-up package up to 30,000 will be provided.
  • 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened during 2016-17.
  • ‘National Dialysis Services Programme’ to be started under National Health Mission through PPP mode
  • “Stand Up India Scheme” to facilitate at least two projects per bank This will benefit at least 2.5 lakh entrepreneurs.
  • National Scheduled Caste and Scheduled Tribe Hub to be set up in partnership with industry associations
  • Allocation of 100 crore each for celebrating the Birth Centenary of Pandit Deen Dayal Upadhyay and the 350th Birth Anniversary of Guru Gobind Singh.

EDUCATION, SKILLS AND JOB CREATION

  • 62 new Navodaya Vidyalayas will be opened
  • Sarva Shiksha Abhiyan to increasing focus on quality of education
  • Regulatory architecture to be provided to ten public and ten private institutions to emerge as world-class Teaching and Research Institutions
  • Higher Education Financing Agency to be set-up with initial capital base of 1000 Crores
  • Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark sheets to be set-up.

SKILL DEVELOPMENT

  • Allocation for skill development – 1804. crore.
  • 1500 Multi Skill Training Institutes to be set-up.
  • National Board for Skill Development Certification to be setup in partnership with the industry and academia
  • Entrepreneurship Education and Training through Massive Open Online Courses

JOB CREATION

  • GoI will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment. Budget provision of 1000 crore for this scheme.
  • Deduction under Section 80JJAA of the Income Tax Act will be available to all assesses who are subject to statutory audit under the Act
  • 100 Model Career Centres to operational by the end of 2016-17 under National Career Service.
  • Model Shops and Establishments Bill to be circulated to States.

INFRASTRUCTURE AND INVESTMENT

  • Total investment in the road sector, including PMGSY allocation, would be 97,000 crore during 2016-17.
  • India’s highest ever kilometres of new highways were awarded in 2015. To approve nearly 10,000 kms of National Highways in 2016-17.
  • Allocation of 55,000 corer in the Budget for Roads. Additional
    15,000 crore to be raised by NHAI through bonds.
  • Total outlay for infrastructure – 2,21,246 crore.
  • Amendments to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment
  • Action plan for revival of unserved and underserved airports to be drawn up in partnership with State Governments.
  • To provide calibrated marketing freedom in order to incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas
  • Comprehensive plan, spanning next 15 to 20 years, to augment the investment in nuclear power generation to be drawn up.
  • Steps to re-vitalise PPPs:
    • Public Utility (Resolution of Disputes) Bill will be introduced during 2016-17
    • Guidelines for renegotiation of PPP Concession Agreements will be issued
    • New credit rating system for infrastructure projects to be introduced
  • Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges.
  • 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India.
  • A new policy for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale, approved.

FINANCIAL SECTOR REFORMS

  • Statutory basis for a Monetary Policy framework and a Monetary Policy Committee through the Finance Bill 2016.
  • A Financial Data Management Centre to be set up.
  • RBI to facilitate retail participation in Government securities.
  • New derivative products will be developed by SEBI in the Commodity Derivatives market.
  • Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts.
  • Comprehensive Central Legislation to be bought to deal with the menace of illicit deposit taking schemes.
  • Increasing members and benches of the Securities Appellate Tribunal.
  • Allocation of 25,000 crore towards recapitalisation of Public Sector
  • Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to 1,80,000 crore.
  • General Insurance Companies owned by the Government to be listed in the stock exchanges.

GOVERNANCE AND EASE OF DOING BUSINESS

  • A Task Force has been constituted for rationalisation of human resources in various Ministries.
  • Comprehensive review and rationalisation of Autonomous Bodies.
  • Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services by using the Aadhar framework to be introduced.
  • Introduce DBT on pilot basis for fertilizer.
  • Automation facilities will be provided in 3 lakh fair price shops by March 2017.
  • Amendments in Companies Act to improve enabling environment for start-ups.
  • Price Stabilisation Fund with a corpus of 900 crore to help maintain stable prices of Pulses.
  • “Ek Bharat Shreshtha Bharat” programme will be launched to link States and Districts in an annual programme that connects people through exchanges in areas of language, trade, culture, travel and tourism.

FISCAL DISCIPLINE

  • Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9% and 3.5%.
  • Revenue Deficit target from 2.8% to 2.5% in RE 2015-16
  • Total expenditure projected at 19.78 lakh crore
  • Plan expenditure pegged at 5.50 lakh crore under Plan, increase of 3%
  • Non-Plan expenditure kept at 14.28 lakh crores
  • Special emphasis to sectors such as agriculture, irrigation, social sector including health, women and child development, welfare of Scheduled Castes and Scheduled Tribes, minorities, infrastructure.
  • Mobilisation of additional finances to the extent of 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by raising Bonds.
  • Plan / Non-Plan classification to be done away with from 2017-18.
  • Every new scheme sanctioned will have a sunset date and outcome review.
  • Rationalised and restructured more than 1500 Central Plan Schemes
    into about 300 Central Sector and 30 Centrally Sponsored Schemes.
  • Committee to review the implementation of the FRBM Act.

RELIEF TO SMALL TAX PAYERS

  • Raise the ceiling of tax rebate under section 87A from 2000 to 5000 to lessen tax burden on individuals with income upto 5 laks.
  • Increase the limit of deduction of rent paid under section 80GG from 24000 per annum to 60000, to provide relief to those who live in rented houses.

BOOST EMPLOYMENT AND GROWTH

  • Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act to 2 crores to bring big relief to a large number of assessees in the MSME category.
  • Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with gross receipts up to 50 lakh.
  • Phasing out deduction under Income Tax:
    • Accelerated depreciation wherever provided in IT Act will be limited to maximum 40% from 1.4.2017
    • Benefit of deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020
    • Benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.
    • The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020
  • Corporate Tax rate proposals:
    • New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
    • Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
  • 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.
  • 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
  • Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.
  • Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.
  • Non-banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful
  • Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.
  • Commitment to implement General Anti Avoidance Rules (GAAR) from 4.2017.
  • Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
  • Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
  • Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.

MAKE IN INDIA

  • Changes in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of aircrafts and ship repair.

MOVING TOWARDS A PENSIONED SOCIETY

  • Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). Annuity fund which goes to legal heir will not be taxable.
  • In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 4.2016.
  • Limit for contribution of employer in recognized Provident and Superannuation Fund of 1.5 lakh per annum for taking tax benefit. Exemption from service tax for Annuity services provided by NPS and Services provided by EPFO to employees.
  • Reduce service tax on Single premium Annuity (Insurance) Policies from 5% to 1.4% of the premium paid in certain cases.

PROMOTING AFFORDABLE HOUSING

  • 100% deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply.
  • Deduction for additional interest of 50,000 per annum for loans up to 35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed 50 lakh.
  • Distribution made out of income of SPV to the RE ITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date.
  • Exemption from service tax on construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes.
  • Extend excise duty exemption, presently available to Concrete Mix manufactured at site for use in construction work to Ready Mix Concrete.

RESOURCE MOBILIZATION FOR AGRICULTURE, RURAL ECONOMY AND CLEAN ENVIRONMENT

  • Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of 10 lakh per annum.
  • Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above 1 crore.
  • Tax to be deducted at source at the rate of 1 % on purchase of luxury cars exceeding value of ten lakh and purchase of goods and services in cash exceeding two lakh.
  • Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%.
  • Equalization levy of 6% of gross amount for payment made to non­residents exceeding 1 lakh a year in case of B2B transactions.
  • Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess.
  • Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles 12 and SUVs. No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.
  • Excise duty of ‘1% without input tax credit or 12.5% with input tax credit’ on articles of jewellery [excluding silver jewellery, other than studded with diamonds and some other precious stones], with a higher exemption and eligibility limits of 6 crores and 12 crores
  • Excise on readymade garments with retail price of 1000 or more raised to 2% without input tax credit or 12.5% with input tax credit.
  • ‘Clean Energy Cess’ levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and rate increased from 200 per tonne to 400 per tonne.
  • Excise duties on various tobacco products other than beedi raised by about 10 to 15%.
  • Assignment of right to use the spectrum and its transfers has been deducted as a service leviable to service tax and not sale of intangible goods.

PROVIDING CERTAINTY IN TAXATION

  • Committed to providing a stable and predictable taxation regime and reduce black money.
  • Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
  • Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
  • New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to 10 lakh. Cases with disputed tax exceeding 10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.
  • High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer applies the retrospective amendment.
  • One-time scheme of Dispute Resolution for ongoing cases under retrospective amendment.
  • Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
  • Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
  • Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.
  • Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).
  • Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from 15 lakhs to 50 lakhs.
  • 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

SIMPLIFICATION AND RATIONALIZATION OF TAXES

  • 13 cesses, levied by various Ministries in which revenue collection is less than 50 crore in a year to be abolished.
  • For non-residents providing alternative documents to PAN card, higher TDS not to apply.
  • Revision of return extended to Central Excise assesses.
  • Additional options to banking companies and financial institutions, including NBFCs, for reversal of input tax credits with respect to non­taxable services.
  • Customs Act to provide for deferred payment of customs duties for 14 importers and exporters with proven track record.
  • Customs Single Window Project to be implemented at major ports and airports starting from beginning of next financial year.
  • Increase in free baggage allowance for international passengers. Filing of baggage only for those carrying dutiable goods.

TECHNOLOGY FOR ACCOUNTABILITY

  • Expansion in the scope of e-assessments to all assessees in 7 mega cities in the coming years.
  • Interest at the rate of 9% p.a against normal rate of 6% p.a for delay in giving effect to Appellate order beyond ninety days.
  • ‘e-Sahyog’ to be expanded to reduce compliance cost, especially for small taxpayers.

StartUp India and Viacom18 join hands

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Viacom18, the television media house that owns and runs channels Colors and MTV, has signed an agreement with the Union government’s department of industrial policy and promotion’s Start-Up India project.

It will launch a year-long ‘outreach programme’ for entrepreneurs, called MTV Kickstart. The initiative will include activities on-ground, digital communication and a TV reality show.

While the Viacom18 brand attached to the programme is MTV, the network’s youth brand, all entities under the former’s umbrella will be mobilised.

The multi-platform initiative is to reach out to young and aspiring entrepreneurs through multiple touch-points across 300 colleges. Around 10 Start-Up Festivals, two-day events in tier-1 & 2 cities, will be organised, allowing youth to interact with top entrepreneurs and investors.

Amitabh Kant, secretary of the government’s department, said: “This will help us engage with dynamic youth and inspire a new generation to follow their dreams and become successful entrepreneurs.”

“The programme will look at a variety of start-ups — in tech and engineering, in the social space, in art and culture and, could be, in the media, too. We are working on the amount of seed money. It will come from a combination of entities across sponsors and VC (venture capital entities). One of the things we want to do is provide mentorship. It becomes critical in making the ideas commercially viable,” says Sudhanshu Vats, group chief executive of Viacom18.

The reality show will go on air in the third quarter of this calendar year. The format would mostly be developed in-house by the network and include a competition, where shortlisted start-ups or entrepreneurs from various on-ground activities under the programme are to compete before a jury for home seed funding.

“Through a process of auditions, we will shortlist the contestants, who will then be participants in the televised reality show. We’ll end the process with an awards show, also televised. The idea is not to make it too formal and intimidating. The MTV brand will help with this. While it’s not frivolous, it will help ease the contestants. It can be quite intimidating for anyone with an idea who does not know much about setting up a business (to present the idea). So, we are looking at people who don’t yet have a start-up but have ideas that can be turned into businesses,” says Ferzad Palia, head of youth and English entertainment at Viacom18.

The network is in talks with brands which want to market to youth and will soon announce the commercial partners. These brands will get visibility on all platforms the outreach programme is present on and across the Viacom18 network.

In December 2015, Zee Bangla, in association with the West Bengal government, launched Egiye Bangla, a start-up reality show. The format was similar to Shark Tank, a reality show for start-ups on the ABC television network in America. Each round had five contestants and each pitched his idea to investors. The latter included Anjan Chatterjee of Speciality Restaurants; Chandra Shekhar Ghosh, managing director of Bandhan Bank, and Ashok Banerjee, a professor at IIM-Calcutta. The show was aired in the 6–7 pm slot on Sundays and launched with 744,000 impressions on television viewers on December 6, 2015, and clocked 441,000 average impressions or TV viewership through the season, according to data from the Broadcast Audience Research Council of India.

Source: http://www.business-standard.com/article/companies/startup-india-and-viacom18-join-hands-116021800787_1.html

I-T Department resolves over 100 transfer pricing cases of US companies

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Indian tax authorities have resolved more than 100 cases of transfer prices with their US counterpart, involving companies from IT and ITeS sectors, in a move expected to give a boost to investment flows into the country.

The Central Board of Direct Taxes (CBDT) has said resolution of such issues follows the framework agreement signed with the US revenue authorities in January last year as part of the Mutual Agreement Procedure (MAP).

The framework will cover about 200 transfer pricing disputes involving US companies.

“More than 100 cases have already been resolved and some more are expected to be resolved before the end of this fiscal,” the CBDT said in a statement on Thursday.

The agreement with the US was finalised under the MAP provision in the India-USA Double Taxation Avoidance Convention.

It further said MAP programmes with other countries such as Japan and the UK are progressing well with regular meetings and resolution of past issues.

The CBDT said a combination of a robust advance pricing agreement (APA) programme and a streamlined MAP would be helpful in creating “an environment of tax certainty and encourage MNCs to do business in India”.

Earlier, the US bilateral APA programme was not applicable to India. “The success of the framework agreement in a short period of one year has led to US revenue authorities opening up their bilateral APA programme to India. The US is expected to begin accepting bilateral APA applications shortly,” the CBDT said.

APA, which was introduced in the Income Tax Act in 2012, provides for signing of an agreement between a taxpayer and the Income Tax department on an appropriate transfer pricing methodology for determining the value of assets and ensuing taxes on intra-group overseas transactions.

Source:
http://economictimes.indiatimes.com/articleshow/50765124.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Startups enjoy 3 years tax holiday over a five year window

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If a startup claims benefit in first year & does not make profit in next two years, it can still enjoy tax exemption on profit in fourth and fifth year

The three-year tax holiday proposed for startups in India will be available over a five-year window, ensuring that innovators won’t lose the benefit even if they make a profit later, the government said.

Those seeking the income tax exemption, announced in the Startup Action Plan on Saturday, will need to get approval by March 2019, in line with the government’s policy to weed out exemptions and bring down the corporate tax rate to 25%. Startups approved until March 31, 2019, will enjoy the benefit for up to five years. The government has proposed that a high-level, inter-ministerial committee should vet startup proposals to validate the innovative nature of the business for granting tax-related benefits. The details of the tax benefits will be announced in the budget.

“The benefit will be available for three years over a five-year period, “a senior government official told ET. If a startup claims the benefit in the first year and does not have a profit in the next two years, it will not lose out on the exemption. If profits are made in the fourth and fifth year, they will still be eligible for the tax break.

“All startups incorporated in India not prior to five years as per the definition of startup and starting the operations before 2019 can get this benefit for three years,“ said Amitabh Kant, secretary in the Department of Industrial Policy and Promotion, which piloted the startup initiative.

With the deadline for seeking exemption set for March 2019, the scheme will effectively run till March 2024, a period of eight years from now.

“This fiscal exemption shall facilitate growth of business and meet the working capital requirements during the initial years of operations, “according to the action plan document.

The policy imposes only one condition on startups claiming the benefit, apart from seeking approval from the appropriate body and meeting eligibility criteria: it should not distribute dividend while getting the tax exemption.

Tax-friendly Regime Need of the Hour for Startup Investors

The devil is in the details. The tax incentive package for startups will be clear in the Budget. But open-ended tax breaks won’t be possible as the government has already signalled a phasing out of exemptions to lower the corporate tax rate. Investments in unicorns would typically be long-term. So, it makes eminent sense to spare investors from paying capital gains tax when they sell their unlisted shares in startups after holding them for over a year. A tax-friendly regime will encourage many of them to relocate to India from, say, Singapore. The government, as promised, should end its Inspector Raj to boost the startup ecosystem.

Source: http://epaperbeta.timesofindia.com/Article.aspx?eid=31816&articlexml=Startups-May-Get-5-Year-Window-to-Avail-18012016015013

 

Government extends tax residency rule – Place of Effective Management

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A deadline for comments on the draft guidelines to determine the tax residency of a foreign company has been extended to January 9.

The government felt the need to determine a company’s place of effective management due to lack of detail in the Income Tax Act leading to the possibility of tax avoidance.

“Representations requesting for extension of the last day for submitting comments and suggestions, have been received and considered,” according to a government statement announcing the extension of the deadline for comments on the issue, earlier slated for January 2.

The Place of Effective Management (POEM) of a company, as the concept was called, was introduced in the Finance Act, 2015 to determine the tax residency of a foreign company.

The draft guidelines for what defines a company’s place of effective management, released on December 23, defines the POEM as “a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.”

“Section 6(3) of the Income-tax Act, 1961, prior to its amendment by the Finance Act, 2015, provided that a company is said to be resident in India in any previous year, if it is an Indian company or if during that year, the control and management of its affairs is situated wholly in India. This allowed tax avoidance opportunities for companies to artificially escape the residential status under these provisions by shifting insignificant or isolated events related with control and management outside India,” according to draft guidelines issued by the Central Board of Direct Taxes.

“As per the amendment brought in by the Finance Act, 2015 a foreign company will be regarded as a tax resident of India, if its POEM in that year is in India,” according to a report by Deloitte and CII.

According to the Deloitte report, there is ambiguity around some of the provisions in the guidelines, such as the duration for which a company has India as a place of effective management. “A question may still arise that for a foreign company to be resident in India, is it necessary that the POEM should be situated in India throughout the financial year under consideration or mainly in India.

Similarly, the term “key management and commercial decisions” in the definition of POEM seems to be causing some confusion.

“Unlike, for instance, the UK, India does not define the term ‘key management and commercial decisions’ and therefore these are undefined and subjective.

In the UK, judicial precedents and tax rules lay emphasis on whether directors/officers taking major decisions are independent, are empowered to take these or whether such directors/officers are acting under the influence or direction of shareholders,” Mr.Alex Postma, Leader–Global and EMEIA International Tax Services, EY had said in a note.

Enterprises have become increasingly mobile and technology and connectivity are as important as never before in their global competence. This poses risks that a travelling executive may create significant unforeseen tax burdens in India,” Mr. Postma added in his note.

Source: http://www.thehindu.com/business/Economy/government-extends-tax-residency-rule-deadline/article8055070.ece

India signs 11 more APAs to reduce tax disputes

by | posted in: Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Income Tax,e-Filing- Individuals, Firms, Companies | 0

The Central Board of Direct Taxes (CBDT) has signed 11 more advance pricing agreements (APAs) with MNCs on Tuesday, taking the total number of such deals that would spare them from rigorous tax audits under certain conditions to 31 so far. Of this, 22 were signed this year. The department had earlier set an internal target of about 150 APAs for this year, mostly with US-based companies in the IT and ITeS sector to avoid future tax disputes. So far, it has covered about a fifth of this target. Experts expect that clearing all APA requests, applying their terms to similar past transactions and resolving disputes with foreign tax authorities under the Mutual Agreement Procedure would clear most of the accumulated cross-border tax disputes amounting to Rs 2.7 lakh crore. Till now about 45 tax disputes are resolved under the MAP procedure.

APA is an agreement between the tax authority and companies on the principles of valuation of certain transactions, which if adhered to will exempt the company from tax audits on cross-border deals. The tax disputes which the government may have with the companies on similar transactions in previous years too would be resolved by applying similar agreed upon value to past transactions. The move is part of the government’s efforts to reduce tax litigation.

According to sources, most of the APAs signed on Tuesday relate to service provider companies in the investment advisory and ITeS sectors. “The effort of the APA authorities is impressive. A lot of hard work has gone into analysing these cases and getting them to a closure,” said Vijay Iyer, Partner & National Leader for Transfer Pricing, EY which was involved in five of the 11 pacts on Tuesday.

While an APA between a company and the tax department will resolve a dispute in India, the possibility of double taxation would be fully addressed only when the tax authority in the company’s home country too becomes party to such agreement. America, which is home to many technology firms facing tax disputes in India, has recently started steps to implement such ‘bilateral APAs.’

Source: http://www.financialexpress.com/article/economy/india-signs-11-more-apas-to-reduce-tax-disputes/170136/

Finance Ministry to ease transfer pricing rules

by | posted in: Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Income Tax,e-Filing- Individuals, Firms, Companies | 0

The finance ministry is streamlining safe harbour rules and advance agreements, two mechanisms to determine the price of services rendered by a multinational to its subsidiary in India.

Safe harbour rules – directives on margins the tax authorities should accept for the transfer price declared by an assessee – have drawn a tepid response since they were introduced a couple of years ago. There is also a huge backlog in advance pricing agreements (APAs), an ahead-of-time understanding between a taxpayer and the tax authority on an appropriate transfer pricing methodology.

ALIGNING INDIAN TAXATION WITH BEST PRACTICES
Safe harbour rules

  • Government looking at lowering safe harbour margins to make it attractive for companies to opt for it
  • Government to make safe harbour definition unambiguous bringing in more clarity

Advance Pricing Agreement

  • With close to 550 cases pending, government looking at expediting clearances through:
  • Sector-specific approach to cases
  • Increasing manpower and filling up vacancies

The move would simplify the tax regime, reduce litigation and help improve the business environment, a finance ministry official said.

The steps will involve lowering the margins in safe harbour rules and definitions will be reworked to remove ambiguities. India announced the safe harbour rules in 2013, but the high margins of up to 25 per cent on total operational profits have made it unattractive for companies to use them.

“We are addressing issues related to transfer pricing to align it with best practices. We are revising the safe harbour rules that will include revisiting the definition and revising the margins, considered high by companies,” said a tax official.

Information technology (IT) and information technology-enabled services (ITeS) companies with transactions of up to Rs 500 crore have a safe harbour operating margin of 20 per cent and those with transactions above Rs 500 crore have a margin of 22 per cent. Knowledge process outsourcing companies have a safe harbour operating margin of 25 per cent.

Experts argue there is ambiguity in the definition of IT, ITeS and knowledge process outsourcing companies with a lot of overlap. Moreover, the margins decided in tribunals or in advance pricing agreements turn out much lower, ranging between 15 and 18 per cent.

“The definitions under the safe harbour rules are fuzzy and sometimes overlap, creating confusion over what rate should apply and which company will fall under which sector. We are expecting clarity on the definition,” said Rahul Garg, leader, direct tax, PwC.

Manisha Gupta, partner, Deloitte Haskins & Sells, said the safe harbour margins were high. “The government agrees to far lower rates at tribunals and in advance pricing agreements,” she said.

The lowering of safe harbour rates will ease the advance pricing agreement backlog. The government introduced the advance pricing scheme in 2012 and there are over 500 applications pending.

“We are considering sector-wise handling of cases by officers to expedite decisions,” the tax official said. “We have already made a request for an increase in manpower to clear the backlog. We expect a decision soon,” he added.

India has the highest incidence of transfer pricing litigation worldwide. The number of cases scrutinised has quadrupled from 1,061 in 2005-06 to 4,290 in 2014-15.

Among measures recently introduced, the government said an officer would be assigned not more than 50 important and complex transfer pricing cases. Officers typically audit more than 70 cases at a time.

Besides, the tax department has incorporated range and multi-year data in transfer pricing calculations to bring Indian laws in line with international practices. Earlier, single-year data and the arithmetic mean were used to arrive at transfer pricing.

Earlier this year, the finance ministry allowed rollback advance pricing agreements so that multinational companies could settle taxes for previous years as well.

“The burden on tribunals, high courts, Supreme Court and even on the APA team can be substantially reduced if the Indian government revamps the safe harbour rules (that is, devising calibrated and more reasonable margins for the sector consistent with the margins finally arrived at post-tribunal orders/MAP/APA and providing clarifications on what constitutes software development activities, KPO, contract R&D,” said a Deloitte & Taxsutra report on transfer pricing.

Approximately over 40 per cent of APA applications are from the IT/ITeS sector. Up to September 2015, more than 575 APA applications have been filed with the APA authorities. Fourteen of these APAs have been concluded, of which 12 are unilateral and two bilateral (with Japan and the UK).

Source:Business Standard