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Budget 2014: More Hits Than Misses!

Published on Thu, Jul 10,2014 | 22:16, Updated at Thu, Jul 10 at 22:16Source : 

By: Nikhil Rohera, Executive Director – Direct Tax, PwC India

In his maiden budget which the Hon’ble Finance Minister presented within a short span of time he managed to roll out certain interesting proposals on the direct tax front.

In the backdrop it must be appreciated that the Government inherited and decided to retain the ambitious tax collection target of Rs.13.7 lakh crores set by the previous Government in the interim budget. In the larger economic interest, it also wanted to increase the tax to GDP ratio while at the same time trying to reign in fiscal deficit.

While it would be fair to say that there were no big bang direct tax measures announced, several proposals are directionally right. For example, it is now proposed that even the small entrepreneurs will be eligible to claim investment allowance of 15% on the amount of actual cost of new assets installed exceeding Rs.25 crores.  This indeed is likely to provide some impetus to the manufacturing sector. Likewise the sunset clause for commencing business in power sector has been extended to 31 March 2017 for claiming the tax holiday. The creation of separate business trusts for infrastructure and real estate sectors and according them a pass through tax status is also a welcome move.

In order to continue attracting foreign investments into the country, a specific amendment is now proposed to clarify that the income earned by FIIs would be treated as capital gains.  This should hopefully put to rest the tax controversies and uncertainties that FIIs were facing on their income characterization in India.  Another welcome amendment is the extension of the concessional rate of withholding tax of 5% on interest payable on overseas borrowings till 30 June 2017.  The scope of this concession has also been extended beyond the infrastructure sector and will now cover all types of bonds issued by Indian companies overseas.

On the personal tax front, marginal relief has been proposed for individual taxpayers by revising the lowest slab exemption limit upwards by Rs.50,000.  Also bearing in mind the high interest rates and inflation in general, the interest deduction on housing loans has been enhanced by Rs.50,000 to Rs. 2 lakhs.  Lastly, deduction limit under section 80C has also been revised upwards by Rs.50,000 to Rs.1.50 lakhs.

On the other hand, there was some disappointment that key policy issues like GAAR, SEZs and indirect transfer tax were left untouched. While it is proposed that all fresh cases involving indirect transfer tax will be pre-approved by a high level committee, there is still no clarity on the interpretation of these provisions per se which will only fuel uncertainty.  Further, a specific amendment to clarify that the CSR expenditure to be incurred by India Inc. under the new Companies Act will not be allowed as a tax deduction has raised a few eyebrows.

Having said this, on an overall basis one must admire the honest efforts of the new Government to live up to its manifesto of encouraging growth by attracting foreign investments, reducing tax uncertainty and boosting manufacture. Clearly the Government has its eyes on a longer horizon and it will be interesting to watch whether these proposals can yield the desired results in the near future.


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