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India: Budget 2017 and Direct Tax

, February 1, 2017, 0 Comments

india-budget-2017-direct-tax-laws-marketexpress-inThe Finance Minister’s speech in the Lok Sabha this morning did not indicate too many changes to the direct tax laws. However, as always, the devil lies in the detail and the Finance Bill, 2017 and Memorandum throws up some interesting changes to the law.

Some key changes in direct tax laws

  • MSMEs entities with a turnover of up to INR 50 crores to have a reduced corporate tax rate of 25%. Carry forward of losses allowed to startups despite change in 51% shareholding.
  • Availability of Minimum Alternate Tax (“MAT”) credit carryforward to be increased to 15 years; Also, amendments to MAT provisions takes into account implications in light of introduction of Ind AS.
  • A maximum limit on interest deductions in a year in the case of interest paid to associated enterprises proposed to be restricted to 30% annually. Unutilized interest deductions available for carry forward for up to 8 years.
  • Conversion of convertible preference shares into equity shares not liable to capital gains tax
  • A lower withholding tax rate of 5% for rupee denominated and foreign denominated bonds extended up to 2020.
  • Indirect transfer tax provisions to not apply to Category I and II Foreign Portfolio Investors.
  • Deemed income in case of unlisted shares transferred at less than fair market value
  • In case of Joint Development Agreements, capital gains to arise at the hands of individuals and HUFs only in the year of project completion.
  • The period of holding to be classified as a long-term capital asset reduced to 2 years in case of immovable property.
  • The base year for the cost of inflation index for long- term capital gains changed from 1981 to 2001.
  • Long term capital gains tax exemption in case of listed shares not available where no Securities Transactions Tax was paid at the time of acquisition of such shares.
  • Domestic transfer pricing regulations to apply only where one of the entities have transactions with a related party that avails profit linked deduction, thus diluting the scope.
  • Secondary adjustments in relation to transfer pricing introduced.

We will be examining some of these aspects in the coming weeks.