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Take on Budget 2016:FM’s attempt to convert challenges into opportunities, says Sanjiv Chaudhary

The POEM principles have been deferred by one year. In more than one instances, finance minister clarified the government’s stand of not taxing retrospectively.

Written by Sanjiv Chaudhary | Published: March 3, 2016 2:57:08 am

The Union Budget for financial year 2016-17 was presented in the backdrop of soaring expectations to foster the India growth story, and the Economic Survey, tabled in Parliament on February 26, 2016, pegged the economic growth between 7 per cent and 7.75 per cent in the 2016-17 financial year .The finance minister Arun Jaitley in his Budget speech stated that “Global economy is in a serious crisis. Financial markets have been battered, but Indian economy has held its ground firmly. IMF has hailed India as a bright spot”.

The finance minister’s tax proposals — considered one of the important areas in the Budget — were based on a his ‘transformational’ 9-point agenda: 1. Relief to small tax payers, 2. Boost growth and employment generation, 3. Incentivising Make in India, 4. Moving towards a pensioned society, 5. Affordable housing, 6. Agri, rural economy and clean environment, 7. Reducing litigation and providing certainty in taxation, 8. Tax simplification and rationalisation and 9. Use of technology for creating accountability.

Announcements like reduction in the corporate tax rates with respect to certain categories (new manufacturing firms, relatively small firms etc. ), withdrawal / restriction in respect of certain tax sops viz (accelerated depreciation, research expenses, sunset for SEZs etc) are in line with the last year’s proposal to undertake a rationalisation of corporate tax rates and phased elimination of exemptions. Other key announcements include The Income Declaration Scheme, 2016 and the Direct Tax Dispute resolution Scheme 2016 .

Jaitley has also attempted to curtail the discretionary powers of the tax officers by granting of mandatory stay on demand upon payment of 15 per cent of the disputed sum while appeal is pending before the CIT(A).

Even though Centre’s commitment to implement GAAR from April 1, 2017, remains, several announcements were made to uplift business and foreign investors’ sentiments. Determination of residential status of a company had undergone a complete change with the introduction of Place of

Effective Management (POEM) concept last year. The POEM principles have been deferred by one year. In more than one instances, finance minister clarified the government’s stand of not taxing retrospectively.

Also, there are tax incentives for start-ups, capital gains exemption for reinvestment in start-ups and one day registration scheme.

A few areas which were not touched upon include no change in the tax rates for an individual as sounded by Economic survey, no amendment in Section 79 on taxability when the shares exchange hands and no change in carry forward of losses among others. With the fine details resting in the fine prints of the Budget documents and each sector having a unique wish list, the question whether the Budget met the people’s expectations will always receive a mixed response. Each one will have different perspective of the ‘could haves’ and ‘should not haves’.

Announced in the backdrop of global headwinds, the finance minister attempted to convert the challenges into opportunities and create a roadmap for government initiatives like Start-up India, Make in India, Digital India among others.


The writer is Partner, Tax, BSR & Co LLP

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