Guide To Corporate Tax

Proposal:

Minimum Alternate Tax rate increased to 15% of book profits from existing 10%.

Impact:

This will increase the cash outflow burden for companies that are liable to tax under MAT.

Proposal:

The period allowed to carry forward the tax credit under MAT to be extended to 10 years from 7 years.

Impact:

This should provide some relief to companies that pay MAT for any assessment year 2006-07 onwards, by allowing them to carry forward and utilize the MAT credit up to 10 years.

Proposal:

Fringe Benefit Tax abolished.

Impact:

This should come as a big boost as FBT was perceived as unnecessary. However, such expenses should now be liable as perquisites in the hands of the employees and may result in a higher tax outflow for the employees.

Proposal:

Extension of sunset clause for units operating in free trade zones, export-oriented units and set up for reconstruction or revival of a power-generating unit to assessment year 2011-12.

Impact:

Extension of tax incentives to industries falling under this sector to aid them during the meltdown, thereby reducing the net tax outflow for such companies, and provide stimulus to service exports and the power sector.

Proposal:

100% deduction in respect of capital expenditure (excluding land, goodwill and financing expenditure) for the business of setting up and operating cold chain facility for specified products, warehousing facility for storage of agricultural produce, laying and operating a cross-country natural gas, crude or petroleum oil pipeline network for distribution.

Impact:

Incentive-linked deductions under Section 35AD should provide the much-needed boost to the creation of supply chain infrastructure, rural infrastructure and environment-friendly means of transportation for bulk goods.

Proposal:

Definition of firm under Section 2(23) has been amended to include limited liability partnership (LLP).

Impact:

In certain other countries, such as UK and Singapore, LLP is treated as a pass-through entity and partners are taxed (instead of LLP). However, in India, LLP will be taxed as a corporate entity and will not be a pass-through. It will be treated on a par with the partnership tax mechanism.

Proposal:

Weighted deduction of 150% for in-house research expenditure (except land and building) incurred under Section 35(2AB) for selected industries extended to almost all sectors of the economy.

Impact:

This means weighted deduction for scientific research to any business incurring eligible research and development expenditure. This should promote research and development in all sectors of industry.

Proposal:

Rules for Safe Harbour and Alternative Dispute Resolution mechanism to be provided by CBDT.

Impact:

Safe Harbour Rules shall provide for the circumstances in which the income-tax authorities shall accept the transfer price declared by the tax payer. The Alternative Dispute Resolution mechanism is aimed to reduce prolonged litigation. These measures are intended to showcase India as an investment-friendly country and provide clarity up front to tax payers, and reduce litigation.

Proposal:

Clarificatory amendment in relation to the reassessment proceedings under Section 147 provides that where the case has been reopened after recording rightful reasons, the assessing authorities can assess or reassess other such income, which has escaped assessment and which comes to their notice subsequently in the course of proceedings under this section.

Impact:

This proposal intends to overrule certain judicial precedents, which restricted the reassessment proceedings to issues in respect of which the reasons have been recorded for reopening the assessment. Now, reassessment can be done even for income escaping tax in respect of issues for which reasons had not been recorded at the time of initiating reassessment proceedings. This proposal is intended to have retrospective effect from assessment year 1989-90 onwards.

Proposal:

Chapter VI-A deductions to be allowed only if claimed in the return of income for profits and gains of a company falling under Sections 10A, 10AA, 10B or 10BB (free trade zones, special economic zones, export-oriented undertakings).

Impact:

Absence of claim in the return of income would lead to non-allowance of deduction. Also, introducing this with retrospective effect (assessment year 2003-04), would lead to hardship for the companies.

Proposal:

The rates of TDS in respect of rentals have undergone a welcome revision from the existing 10% (on plant and machinery) and 15%/20% (land, building and furniture) to 2% and 10%, respectively.

Impact:

This would help optimize cash flow in the hands of the recipient.

Proposal:

Donations made to electoral trusts eligible for 100% deductions provided the trust is approved by the prescribed authorities

Impact:

This should help streamline the flow of donations to political parties and thereby result in clear visibility and transparency.