Sunil Kapadia: Corporates win some, lose some in Budget 18

Corporate India had many expectations from the Budget, especially considering that a path was to be laid down to bring down corporate tax rate and phase out exemptions. Expectations were more so, given the global trend to reduce the corporate tax rates for large taxpayers (US reducing from 35% to 21%). However, belying expectations, the current budget is a mixed bag for corporates.

The proposals corporates will cheer for are the lower tax rate (25%) for companies with a turnover of up to 250 crores in the FY 2016-17 (Not applicable to LLPs). However, this largely benefits MSME companies given the low turnover threshold.

The additional deduction of 30% on the cost of new employees has been further rationalized. The requirement of 150 days of employment in the year has been extended to footwear and leather industries. Further, the requirement of 240 days of the employment of the employee during the year is rationalized to provide that even if the employee has not remained in employment for 240 days during the year, but has remained in continuous employment in the subsequent year, a deduction can be availed.

The levy of Minimum Alternative Tax (MAT) on certain foreign companies falling under the presumptive taxation (i.e. Oil & Gas and Shipping business) was much debated. It has been clarified that MAT will not be applicable and shall be deemed never to have been applicable from 1 April 2001 to companies offering income under presumptive taxation — a welcome move for foreign companies.

Presumptive taxation for transporters having less than 10 trucks was also availed by companies with large tonnage capacity trucks, while the intent was to incentivize small transporters. It is proposed that in case of heavy goods vehicle (more than 12MT gross weight), income deemed to be Rs 1,000 per ton of gross vehicle weight for a month or part of the month.

Tax benefits to start-ups have been extended to those which get incorporated up to March 31, 2021. Benefits were extended to businesses engaged, inter-alia, in innovation and employment generation. To ensure success of the Insolvency and Bankruptcy code 2016, in case of change in shareholding in excess of 51%, business losses won't lapse. However, an opportunity of being heard to be given to jurisdictional Principal Commissioner or Commissioner for the same by may be onerous. Some of the proposals, such as the increase in Cess rate from 3% to 4% will turn burdensome for corporates.

Also, ICDS provisions read down by the Delhi High court have been overruled by proposing amendments to various sections, which have been made retrospective and applicable for AY 2017-18. Corporates, that have revised the tax return for AY 2017-18, may have to revise tax returns if any position contrary to ICDS have been adopted. Further, no immunity from penalty is provided, given that it is retrospective.

Rationalization in MAT provisions was anticipated, however, relief was only provided to companies under Insolvency and Bankruptcy; business losses and unabsorbed depreciation both can be set-off for MAT purposes. There is no MAT relief for waiver of loans. LTCG, in excess of Rs 1 lakh, has been brought under the tax net at 10%, if done through stock exchange and STT is paid. There is no indexation or exchange fluctuation benefit.

By Sunil Kapadia, Partner-Tax, EY India