Buyback income of all kinds taxable

Budget 2016 for corporates has several provisions that define future path of corporate taxation, status of incentives, deductions/ exemptions, measures to close litigation, POEM, etc.

Tax on distributed income on buyback was made applicable from June 1, 2013. Buy-back was defined to include buyback as per section 77A of the Companies Act, 2013. There existed an ambiguity whether buyback tax will be applicable in case of buyback under different provisions of the Companies Act as well. Clarification has now been provided that tax on distributed income on buyback will be applicable to any kind of buyback under the company law; rules for computing the distributed income will also be notified at a later date.

Finance Act 2012 provided for concessional rate of tax of 10% on transfer of 'unlisted securities'. The term 'securities' had the same meaning as defined under the Securities Contracts (Regulation) Act. Certain Courts had taken a view that shares of a private limited company are not 'securities'. In line with the government's commitment to reduce tax litigation, it is proposed that the concessional rate of 10% will be applicable to transfer of capital asset being shares of a company, not being a company in which the public are substantially interested. Effectively, transfer of shares of private limited companies will also now get covered

Para D of the Explanatory Memorandum details complete chart of how various incentive provisions in current law will span out between now and FY 2020-21. While SEZ Units commencing activities before 1 April, 2020 will continue to avail tax exemption under section 10AA as existing, various incentives under Chapter VIA dealing with Profits of operation/ maintenance of an infrastructure facility as well as those on development of SEZ's as per Section 80IA of the Act will be available only if the activity commences before 1 April 2017.

In so far as various deductions under Section 35 are concerned, R&D weighted deduction reduces to 150% between April 2017 to March 2020 and thereafter to 100%. Expenditure on notified agricultural extension projects (Section 35 CCC) gets reduced from 150% to 100% from 1 April 2017. Expenditure on scientific research contributions to approved research associations/ universities etc gets reduced from 175% to 150% between April 1, 2017 to March 31, 2020 and thereafter to 100%. Also expenditure on scientific research in the form of contribution to companies gets reduced from 125% to 100% with effect from 1 April 2017.

The highest rate of depreciation in new Appendix IA read with Rule 5 of IT Rules, 1962 shall now be 40% instead of the current 100%. It will apply to all assets (existing in the block or new) with effect from 1 April 2017. Some of the asset classes affected would be pollution control equipment, waste control equipment, energy saving devices etc

Companies engaged in manufacture of FMCG goods were entitled to claim an investment allowance of 15% of the value of the new plant and machinery of Rs 25 crores or more, acquired and installed in a tax year. Many companies used to face hardship to claim such investment allowance as the dual condition of acquisition and installation of the new machinery in the same tax year had to be satisfied. The Government now proposes to remove such hardship and allow the benefit of the investment allowance in cases where the new machinery has been acquired in a tax year and installation of the same is done on or before 31 March 2017.

Activities of Foreign Mining Companies of displaying rough diamonds without actual sales taking place in a Special Notified Zone in India will not lead to creation of business connection and consequent taxation under section 9(1)(i) of the Income Tax Act.

Foreign National Oil Companies/ Multinational Companies who store their crude oil in India for building strategic reserves will be exempt from tax if such storage and sale is pursuant of agreement entered into/ approved by the Central Government and such agreements are notified by Central Government. This is applicable from assessment year 2016-17 itself.

The writer is tax parter at EY India