The Finance Minister of India presented Budget for 2016-17 to the Parliament on 29 February 2016. The main changes of the Indian budget for 2016/17 are summarized below:
Corporate income tax:
– No change in the corporate tax rate except for new eligible manufacturing companies which are taxable at 25% without claiming specified deductions, allowances or depreciation; and there is a new corporate tax rate of 29% (instead of 30%) for domestic companies whose total turnover or gross receipts do not exceed INR 50 million.
– In relation to the determination of residence status of a company the Finance Bill 2016 defers implementation of the “Place of Effective Management” criterion until 1 April 2017.
-A new pass-through taxation regime has been introduced for a securitization trust set-up in accordance with the SARFAESI Act. Income of a securitization trust shall continue to be exempt and any income from such a trust would be taxable in the hands of the investors.
– Currently, Indian companies paying dividends to their shareholders are required to pay dividend distribution tax (DDT), with the dividend income exempt from tax in the hands of the recipient. The Finance Bill has proposed a levy of tax at a rate of 10% on the gross amount, where the dividends received by a resident taxpayer exceed INR 1,000,000 (USD 14,598). This is in addition to the DDT paid by the company.
– The Finance Bill proposes an exemption from tax on capital gains to taxpayers who have invested long term capital gains arising from sale of residential property in shares of a start-up company. This is subject to conditions including the requirement that an individual holds more than 50% of the shares of the company.
The Finance Bill also introduces a new exemption from capital gains tax if long term capital gains are invested in units of a specified fund for promoting the start-up India Action Plan. The exemption is subject to a lock-in of 3 years and a maximum invested amount of INR 5,000,000 (USD 72,993).
Additionally, long term capital gains earned by a non-resident on shares of a company in which the public are not substantially interested shall be taxable at a rate of 10%.
The following measures are also applicable:
– As part of the tax reforms and to reduce the compliance burden, the Bill proposes that non-resident taxpayers will be exempt from providing a Permanent Account Number (an Indian tax identification number) and will not attract a higher rate of withholding (20%), if they can provide alternate documentation as prescribed.
-The Bill proposes to rationalize the penalty provisions with respect to the concealment of income and/or disclosure of inaccurate information. The penalty for concealment of particulars or furnishing of inaccurate particulars has been revamped, with a penalty of 50% for under reporting and 200% for misreporting.
– The Income Declaration Scheme, 2016 provides a mechanism for voluntary disclosure of undisclosed income, levying tax (including interest and penalty) at the rate of 45% effective from 1 June 2016.
-In line with the recommendations contained in the OECD report on Action 13 of the BEPS Action Plan, the three-tiered (i.e. Master File, Local File and CbC reporting) transfer pricing documentation structure is proposed to be adopted for specified companies.
Personal income tax:
– No change in the individual slabs and tax rates. The surcharge to be increased from 12% to 15%, when the total income exceeds INR10 million per annum in the case of individuals.
– The tax exemption for the employer’s contribution to a superannuation fund (SAF) increased from INR100,000 to INR150,000 p.a., with a 40% exemption on payments in lieu of or commutation of an annuity purchased out of the contributions made on or after 1 April 2016.
-a 40% exemption on amounts payable by the National Pension System Trust to an employee on closure of or opting out of a pension scheme.
