Reform. Perform. Transform. · TDS should not apply for provisions made and reversed during the...

www.skpgroup.com/budget2018

Reform. Perform. Transform.

Union Budget 2018Industry Expectations

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Winner of India Tax Firm of the Year 2016 at the Asia Tax Awards

Typical Scenario

Rationalise Effective Tax Rates

Simplification Measures

Making TDS Less Tedious

Set Right Unjust Enrichment

Tax Incentives

Migration to LLP

Capital Gains on Indirect Transfer of Shares

Section 79

Other Aspects

Our Story

Coverage

224-01-2018

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Typical Scenario

324-01-2018

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Typical Scenario

424-01-2018

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Rationalise Effective Tax Rates

524-01-2018

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India’s tax rates are among the highest in the world

United States reduced the corporate tax rate from 35% to 21%

High tax rates affect competitive advantage of Indian businesses

Corporate Taxation

624-01-2018

Country Tax Rate*

Germany 15%

Canada 15%

Singapore 17%

United Kingdom 19%

Finland 20%

United States 21%

Sweden 22%

Japan 24%

China 25%

India 34%*indicative tax rates

Expectations

Finance Minister should deliver on his promise to cut corporate tax rate to 25%

25% should be effective tax rate – after surcharge and cess

25% headline rate is effectively 29% in highest bracket

MAT should be correspondingly reduced, so that corporate tax rate cut is effective

DDT should be reduced since dividends are now also being taxed in the hands of individual shareholders

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Tax cost disproportionately high

Equity lacking between salaried and self-employed taxpayers

Low tax base

Low and archaic exemption limits

Individual Taxation

724-01-2018

Expectations

Widen the tax slabs – especially for 20% and 30% tax rate

Reduce the age limit to qualify as very senior citizen (currently 80 years)

Enhance section 80C limit – payments for first house to be deductible at actual

Enhance section 80D limit - Health-care premium to be deductible at actual

Enhance exemption limits for allowances (medical expenses, children education allowance, meal expenses)

Provide deductions for:

Skill development expenses

Expenditure incurred for benefit of dependant parents

Personal expenditure incurred through digital means

Expenditure on crèche

Should basic exemption be enhanced?

Should standard deduction be introduced?

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Simplification Measures

824-01-2018

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An Overview

Situation

Surcharge and cess create confusion in understanding effective tax rate

Income-tax law does not recognise concept of materiality

Tax Residency Certificate (TRC) mandatory to avail tax treaty benefit

Courts have consistently held that surcharge and cess do not apply on tax treaty rates

Delhi High Court held that most of ICDS provisions were constitutionally invalid

Expectation

Do away with surcharge and cess with a corresponding change in basic tax rate

Provide 100% depreciation on assets of smaller value (say INR 10,000 per asset)

For small payments (say up to INR 5 lac), the requirement of TRC should be dispensed with

Suitable clarification should be provided in the law itself

Delhi High Court judgment should be accepted and ICDS should be removed from law in entirety

924-01-2018

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Making TDS Less Tedious

1024-01-2018

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Section 199 v CPC procedures

Many cases of denial of TDS credit based on Form 26AS though claim is as per law

Substantial time and effort in seeking relief from Assessing Officer

Conceptually, 26AS cannot reflect TDS credit as per section 199 in 100% cases

TDS | Income

1124-01-2018

Expectations

Allow the assessee an option to claim TDS credit as per section 199 or Form 26AS

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Excess TDS deposited under different sections cannot be easily interchanged

For example, TDS on salaries cannot be used for non-salaries

TDS applies on provisions made and reversed during the year

TDS on software purchase – applicable in all cases based on literal interpretation

Notification 21/2012 not comprehensive

TDS on reimbursements – whether fees for technical services?

TDS on cost sharing arrangements – whether TDS will apply?

TDS | Expenses

1224-01-2018

Expectations

TDS deposited should be treated as a running account – remove section-specific distinctions

TDS should not apply for provisions made and reversed during the same year

TDS should not apply on purchase of standard software

Guidance to be provided on what constitutes cost to cost reimbursement and cost sharing

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Set Right Unjust Enrichment

1324-01-2018

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Sale of Unlisted Shares Below Fair Market Value (FMV)

Mr A sold certain unlisted shares to Mr B at INR 100. FMV was INR 130

Mr A will be taxed considering sale price to be INR 130 (Section 50CA)

Mr B, the buyer, will also be taxed on INR 30 (INR 130 – INR 100) (Section 56(2)(x))

Tax on INR 30 is collected from Mr A as well as Mr B – double taxation?

An Overview

1424-01-2018

Expectations

Levy tax either on the buyer or on the seller, but not both

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Interest on Excess/Short Payment of Tax

Interest on short payment of self-assessment tax is charged @ 1% per month

Interest on refund is given @ 0.5% per month

Interest paid is not tax deductible but interest received is taxable

An Overview

1524-01-2018

Expectations

Interest on short/excess payment of tax should be at the same rate – It is intended to be compensatory

Interest on delayed payment of TDS should be calculated on days basis, rounded-off to nearest month

Interest on Delayed Payment of TDS

For example, TDS deducted on 30 September 2017 is to be paid by 7 October 2017

If TDS is paid on 10 October, tax authorities charge interest for 2 months!

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Tax Incentives

1624-01-2018

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Benefit available to all kinds of businesses

Should be increase in number of employees over earlier year

30% of salary paid to additional employees is allowed as an additional deduction for three (3) years

For a salary of INR 100 in first year, deduction allowed is INR 190 over 3 years

Certain Conditions

Employee should work for a minimum period of 240 days during the year (150 days for manufacture of apparel)

Salary of additional employees should not be more than INR 25,000 per month (excluding employer’s contribution to provident fund)

For Employment Generation | Section 80JJAA

1724-01-2018

Expectations

Condition of 240 days should be done away with/suitably relaxed

Salary threshold should be significantly increased

Condition to be inserted to ensure new employees are retained for a particular period of time

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An Overview

1824-01-2018

Scientific Research Expenditure – extension for period of applicability for weighted deduction

Highway Trauma/Accident Centres

Water Purification and Supply Projects

Sanitation Projects

Tourism

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Migration to LLP

1924-01-2018

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Conversion of an existing company into a Limited Liability Partnership (LLP) is exempt from capital gains, if certain conditions are satisfied

Some of the conditions

Turnover of the company for any of the last 3 years should not exceed INR 60 lac (INR 6 million)

Value of assets of the company for any of the last 3 years should not exceed INR 500 lac (INR 50 million)

An Overview

2024-01-2018

Expectations

Conversion of a company into an LLP should be tax neutral

Alternatively, the limits of INR 60 lac and INR 500 lac should be suitably enhanced

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Capital Gains on Indirect Transfer of Shares

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Seller holds shares of F, a foreign company

F Co holds shares of I, an Indian company

Seller sells F’s shares to a buyer outside India

Transaction can attract capital gains tax in India, if substantial value of shares of F is derived from I (assets situated in India)

Substantial value

Value of INR 100 million (USD 1.50 million)

At least 50% of value of F should be derived from I

An Overview

2224-01-2018

Expectations

Intra-group transfer of shares, where ultimate ownership remains the same, should be exempted from indirect transfer provisions

Seller Buyer

F

I

outside India

in India

Sale

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Applies to closely held companies

Where there is change in voting power by more than 49%, brought forward business losses cannot be carried forward

Illustration

A is the holding company of B

B is the holding company of C

C has substantial brought forward business loss

As a part of group restructuring, B sold its shares in C to A. Resultantly, shareholding of C changes from B to A – change in shareholding

Section 79 could be attracted in such situations

An Overview

2424-01-2018

A

B

C

100%

100%

A

B C

100% 100%

Existing Structure

Amended Structure

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India’s tax base is quite narrow – only 1.7% of the total population pays income tax

Rising popularity of crypto-currencies

Tax on long-term capital gains on sale of listed equity shares

More companies getting covered under IND-AS

Discussions regarding moving to the calendar year as the new financial year

New direct tax code

Points To Consider

2624-01-2018

Expectations

Stringent provisions to be introduced to widen tax base

Tax treatment for crypto-currencies should be clarified

Tax should not be imposed on long term capital gains on listed securities

Period of holding may be increased to 2 years – listed securities could be at par with unlisted securities and real estate

Specific provisions to be introduced to clarify how tax computation would operate for companies following IND-AS

Roadmap should be laid out for moving to calendar year system – should not be immediate

The contents of this presentation are intended for general marketing and informative purposes only and should not be construed to be complete. Thispresentation may contain information other than our services and credentials. Such information should neither be considered as an opinion or advice nor berelied upon as being comprehensive and accurate. We accept no liability or responsibility to any person for any loss or damage incurred by relying on suchinformation. This presentation may contain proprietary, confidential or legally privileged information and any unauthorised reproduction, misuse or disclosureof its contents is strictly prohibited and will be unlawful.

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Reform. Perform. Transform. · TDS should not apply for provisions made and reversed during the...

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