Union Budget 2016 – The year of rationalization and simplification

• Under the Income Declaration Scheme, 2016, undisclosed income shall be subject to an effective tax rate of 45 percent. The declarations made under the Scheme shall be exempt from wealth tax and immunity from prosecution under various regulations.

Start-uprelated

• Exemption to individual tax payers who have invested long term capital gains arising from sale of residential property in shares of a startup-company, subject to satisfaction of certain conditions.
• Exemption from capital gains tax if the long term capital gains are invested in units of a specified fund for promoting start-up India Action Plan, as notified by the Government. The exemption is subjected to lock-in of 3 years and a maximum cap of INR 50 Lakhs.
• 100 percent deduction of profits for 3 out of 5 years for startup that set up during April 2016 to March 2019. However, it may be noted that Minimum Alternate Tax at the rate of 18.5 percent would be applicable to such companies.Based on the “Start-up India Action Plan” one would have expected the FM to exempt startups from the levy of MAT, as well, thereby enabling startups improve their working capital position.

Other tax related key amendments

• Corporate tax rate reduced to 29 percent in the case of companies having turnover of less than INR 5 crores.
• Tax Collected at Source at the rate of 1 percent on purchase of luxury cars exceeding value of INR 10 Lakhs and purchase of goods and services in cash exceeding INR 2 Lakhs, would now be applicable.
• Excise duty of 1 percent would now be levied on articles of jewellery, subject to specified threshold and related conditions.
• Excise duty of 2 percent would now be levied on readymade garments and made up articles which bear or are sold under a brandname.
• The effective service tax rate from 1 June 2016 will stand increased from 14.5 percent to 15 percent, through the introduction of KrishiKalyanCess.
• An infrastructure cess of upto 4 percent is proposed to be levied on specific motor vehicles.
• An equalization levy of 6 percent would be applicable on certain specified payments effected to non-residents, for instance, payments for online advertisements. It is quite likely that the said cost would need to be borne by the Indian counterpart.

Conclusion

One does sense good intentions behind the Budget provisions and the direction that it seeks to provide the Economy. One would hope that the plans of the Government are converted into action with appropriate review mechanism being put in place. One does also hopethat the provisions are administeredin an even handed manner in abusiness friendly spirit of mutual trust.Truly, the moment for India Inc has arrived.

Adv.Sherry Samuel Oommen

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