Announcing Corporate Tax proposals in the Union Budget 2016-17, finance minister Arun Jaitley said that new manufacturing companies incorporated on or after 1 March 2016 will be given an option to be taxed at 25 per cent + surcharge and cess provided they do not claim profit-linked or investment-linked deductions and do not avail of investment allowance and accelerated depreciation.
He further proposed to lower the corporate tax rate for the next financial year for relatively small enterprises, ie, companies with turnover not exceeding Rs5 crore (in the financial year ending March 15), to 29 per cent + surcharge and cess.
Recognizing the importance of start-ups in employment generation and as key partners in Make in India programme, Jaitley proposed 100 per cent deduction of profits for three out of five years for start-ups set up during April 2016 to March 2019 entailing MAT liability.
He also proposed 10 per cent rate of tax on income from worldwide exploitation of patents, developed and registered in India by a resident. In order to get more investment in Asset Reconstruction Companies (ARCs) he proposed complete pass through of Income Tax to securitization trusts including trusts of ARCs. Securitization Trusts will be liable to deduct tax at source. Period for getting benefit of long term Capital Gain regime in case of unlisted companies will be reduced from 3 to 2 years.
Similarly to promote innovation, he proposed a special patent regime with 10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India.
Non-banking financial companies will be eligible for deduction to the extent of 5 per cent of its income in respect of provision for bad and doubtful debts.
The corporate income tax rate for the next financial year of relatively small enterprises, ie, companies with turnover not exceeding Rs5 crore (in the financial year ending March 2015) is proposed to be lowered to 29 per cent plus surcharge and cess. The new manufacturing companies which are incorporated on or after 1 March 2016 are proposed to be given an option to be taxed at 25 per cent plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
Service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by assessing bodies empanelled by ministry of skill development and entrepreneurship are also proposed to be exempted.
The determination of residency of foreign company on the basis of Place of Effective Management (POEM) has been deferred by one year.
To get more investment in Asset Reconstruction Companies (ARCs), which play a very important role in resolution of bad debts, a complete pass through income-tax to securitisation trusts, including trusts of ARCs has been proposed. The income will be taxed in the hands of the investors instead of the trust.
The benefit of Section 10-AA to new SEZ units will be available to those units which commence activity before 31 March 2020. The weighted deduction U/s35-CCD for skill development will continue up to 1 April 2020, Shri Jaitley said.
The finance minister also enunciated a plan for phasing-out various exemptions as the corporate tax is proposed to be reduced from 30 per cent to 25 per cent over a period. Such graduated plan includes:
- Accelerated depreciation provided under I-T Act to be limited to maximum 40 per cent from 1 April 2017;
- Benefit of deductions for research to be limited to 150 per cent from 1 April 2017 and 100 per cent from 1 April 2020;
- Benefit of section 10AA to new SEZ units to be available to those units which commence activity before 31 March 2020; and
- Weighted deduction under section 35CCD for skill development to continue up to 1 April 2020.
Other objectives enunciated for his tax proposals are: additional resource mobilisation for agriculture, rural economy and clean environment, use of technology for creating accountability, simplification and rationalisation of taxation and reduction in litigation for providing certainty in taxation.