Budget 2016 - Direct taxes

1.  No change in basic corporate tax rates for existing companies with turnover exceeding INR 5 crores (in Financial Year 2014-15). For companies with turnover less than INR 5 crores (in Financial Year 2014-15), basic corporate tax rate reduced from 30% to 29%.

2.  For domestic companies set up after March 1, 2016 and engaged in the business of manufacture of article or thing, basic corporate tax rate of 25% proposed to be made applicable subject to this company not availing specified investment linked or profit linked investments under any provisions of the Act.

3.  Dividend income from domestic companies presently exempted in the hands of shareholders is now proposed to be taxed in the hands of Individuals, HUFs and firms (where dividend income exceeds INR 10 lacs) at the rate of 10% on gross basis.

4. Equalization levy for Digital transaction: Equalization levy of 6% of the amount of consideration for specified services payable by Indian residents/Indian PE’s of non-residents to non-residents where the aggregate amount of consideration exceeds INR 1 lac. Levy to be collected by way of deduction by Indian residents/Indian PE’s from the payments to non-residents. Disallowance of the consideration paid/payable by Indian residents/Indian PE’s for failure to deduct and deposit equalization levy to Government. Income of non-residents proposed to be exempt under Section 10. 

5. Buyback of shares – Section 115QA proposed to be amended to cover any type of buyback of unlisted shares undertaken by the Company and not only to the buybacks as per Section 77A of the Companies Act, 1956. Further, rules to be prescribed for the manner of computation of amount of consideration in various circumstances including shares being issued under tax neutral reorganizations and in different tranches.

6.  Concessional Patent regime: Income by way of royalty in respect of patent developed and registered in India to be taxed at the concessional tax rate of 10% (plus surcharge and cess) in the hands of registered Indian patent holder.

7.  Sunset clause for Section 10AA introduced. No deduction available to new SEZ units commencing operations after March 31, 2020.

8.   Deduction under Section 80JJAA relating to deduction of 30% of additional wages paid to new regular workmen presently available only for manufacturing sector now proposed to be extended to all sectors provided the total CTC to company of such new regular workmen is less than INR 25 per month and the new regular workmen is employed for a minimum of 240 days in the year. Earlier condition for atleast 10% increase in the workforce has been removed.

9.  Provisions of place of effective management (‘POEM’) test for determining residency status of non-resident companies proposed to be deferred by an year and now proposed to be made applicable from April 1, 2017 instead of April 1, 2016. GAAR provisions have not, however, been further deferred.

10.   Non-residents have been proposed to be exempted from the rigors of Section 206AA i.e withholding at the higher rate of 20% where PAN of non-resident not available subject to non-resident furnishing an alternate document.

11.   Non applicability of MAT to foreign companies (not having PE in India) proposed to be clarified by legislative amendment to Section 115JB of the Act.

12.  Direct Tax Dispute Resolution Scheme, 2016 proposed to be introduced allowing assessees to settle the pending appellate matters before CIT(A) by paying tax on assessed income and interest upto the date of assessment. Where the disputed tax exceeds INR 10 lacs, 25% of the minimum penalty leviable also required to be paid for withdrawal of appeals.

13.   Country-by-Country reporting requirements proposed to be introduced under the TP regime subject to rules being prescribed in this regard.

14.   Concessional tax rate of 10% on long term capital gains under Section 112(1)(c) proposed to be clarified to be applicable to shares of private company as well.

15.   Threshold provided under Section 194C for withholding taxes on contractual payments proposed to be increased to aggregate annual consideration of INR 1 lac as against existing threshold of INR 75 thosand

16.   Section 47(xiiib) of the Act (dealing with tax neutral conversion of private company into LLP) proposed to be amended to include additional condition that the total book value of assets in the books of account of the Company should not exceed INR 5 crores in any of the three previous years preceding the year in which conversion of the Company takes place.

17.   Belated return under Section 139(4) can now be filed upto the end of relevant assessment year as against the existing time limit of one year from the end of relevant assessment year. Section 139(5) proposed to be amended to permit revising of belated returns filed under Section 139(4).

18.   Section 143(1) proposed to be amended to provide for mandatory processing of income tax returns before the issuance of assessment order under Section 143(3) of the Act.

19.   Time limit for completion of regular assessment under Section 143(3) proposed to be reduced to 21 months from the end of relevant assessment year as against the existing time limit of 24 months. For TP referred cases the time limit proposed to be reduced to 33 months from the end of relevant assessment year as against the existing time limit of 36 months.

20.   Interest @ 9% (as against existing rate of 6%) proposed to be granted under Section 244A where the appeal effect order is not passed within 90 days of the receipt of the appellate order by the Principal Commissioner.

21.   Filing of appeals by the tax officer against the assessment order passed pursuant to the directions of DRP proposed to be done away with.

22.   The law relating to levy of penalty for concealment of income provided in Section 271(1)(c) proposed to be replaced with new Section 270A to provide for levy of penalty in cases of under-reporting and misreporting of income as under:

• ·Penalty @200% of the tax payable on under-reported income where under-reporting is on account of misreporting of income by assessee. Misreporting of facts specified to inter-alia include misrepresentation or suppression of facts, non recording of investments in books etc.

23.   Immunity from penalty proceedings under Section 270A (only for cases covered under under-reporting where penalty leviable at the rate of 50%) and prosecution proceedings under Section 276C is proposed to be provided assesse pays tax and interest specified in the assessment or re-assessment order and does not prefer an appeal against the said order before the Commissioner (Appeals). Application for such immunity to be made by the assessee within one month from the end of the month in which order is received by the assessee.

24.  Scope of the tax office to make adjustments while processing of return under Section 143(1) extended to adjustments made on the basis of data available with tax office in the form of audit report filed by taxpayers, returns of earlier assessment years, Form 26AS, Form 16 and 16A.

25.   The 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. This proposed amendment, though forming part of FM’s speech, is not specifically covered in the Memorandum and the Finance Bill.  

26.   Stay of demand: The Income-tax Department is also issuing instruction making it 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). In case of deviation, assessing officer has to get orders of his superiors. The tax payer also has an option to go to superior officer in case he does not agree with conditions of stay order passed by the subordinate officer. This proposed amendment, though forming part of FM’s speech, is not specifically covered in the Memorandum and the Finance Bill.

27.   Provisions of Rule 8D dealing with the computation of expenditure in relation to exempt income proposed to be amended to provide that disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed.