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Expectations from Union Budget 2016

12The countdown for the Budget 2016 has begun. From average taxpayer to tax experts, all eyes are transfixed on the Union Budget 2016. Every year 'Taxmann' comes out with its expectations from the Union Budget. In our expectations for the Union Budget 2014 and 2015, we predicted as well as suggested certain changes consisting of substantive and procedural changes which were published in [2014] 47 taxmann.com 120 (Article), [2015] 54 taxmann.com 416 (Article) and [2015] 32 CPT 253 (Article). It is to our credit that many of our predictions came true in the Union Budget.

This time also we have recommended substantive/procedural changes and various other matters which CBDT should clarify to end the controversy and to bring about certainty in the Income-tax laws.

Our expectations from the Union Budget, 2016

Union Budget likely to reduce corporate tax rate with rationalization of exemptionsOn February 28, 2015 the Hon'ble Finance Minister, Mr. Arun Jaitley had proposed to reduce the corporate tax rate from 30% to 25% in his Budget Speech.3II. Tax incentives for start-upsThe Government of India has announced 'Start-up India' initiative for creating a conducive environment for start-ups. So, it is very likely that big announcements would be made in upcoming Budget 2016 to promote start-ups in India.

III. Disallowance under Section 14A should be reconsidereda) Dividend income and share in profit of firm should not be treated as exempt income for Section 14A disallowance as these incomes always suffer economic taxation.b) Section 14A disallowance should not exceed amount of total expenditure claimed under any provision of the Act.

IV. Amendments needed in MAT provisionsCorporate India gleefully greeted the Budget 2015 when the Finance Minister announced the scaling down of corporate tax rate in the next 4 years to finally halt at 25 percent. In the backdrop of slowdown of economies across the globe, corporate India might be tempted to seek some tax benefits to spur growth in India by way of amendments to certain tax provisions, besides reduction in tax rates in the ensuring budget.

4V. Applicability of Section 206AA if tax rate under treaty is more beneficialAs per section 206AA where the deductee does not furnish the PAN, tax shall be deducted at source at higher of the following rates:a) rate specified in the relevant provision of this Act; orb) rate or rates in force; orc) 20%.

VI. Transfer Pricing and Marketing intangiblesMarketing intangibles have been one of the most contentious issues in Indian Transfer pricing litigation history. With a number of game changing and landmark rulings rolled out in 2015, a level playing field has been created in the matter. However, there is still room for more clarity to be provided as the matter travels to The Supreme Court, for the multinationals to take steps to mitigate onerous litigation and tax exposure in the matter.

VII. DTAA benefit should be allowed on basis of self-declaration instead of TRCNon-residents in India intending to avail benefit under the DTAA between India and any other country need to produce a certificate of his being resident, i.e., Tax Residency Certificate ('TRC') from the tax authorities of the country of which he is a resident.

5VIII. Interest on refund arising on excess payment of self-assessment taxSection 244A of the Act, deals with the grant of interest on refund of any amount of tax, which becomes due to the assessee in terms of the provisions of the Act. The section was inserted in the statute as a measure of rationalization, to ensure that the assessee was duly compensated by the Government by way of payment of interest for monies legitimately belonging to him and wrongfully retained by the Government without any gaps.

IX. Clarity needed on taxability of Joint Development AgreementsFor development of real estate, concept of joint development arrangement has emerged as a popular model wherein land owner and developer combine their resources and efforts. Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer's cost. Thus, land is contributed by the land owner and the cost of development and construction is incurred by the developer.

X. Taxability of secondment arrangements Under a typical secondment arrangement, the seconded employees/assignees are transferred to the host country entity (the Indian entity) to work on special assignments, which are generally technical or managerial in nature. For the period under secondment, the secondees work under the direction, control and supervision of the Indian entity. Through the seconded employees the investors are able to efficiently nourish their investments in India. However, there are no clear cut guidelines to determine taxability in secondment arrangements. Thus, the secondment agreements have led to legal wrangle's between revenue and foreign entities.XI. Threshold limit and rate of TDS should be rationalizedIt is recommended thatthe age-old threshold limits of TDS should be increased to avoid the situation of first collection of taxes and its subsequent refund. Further, TDS rates should also be rationalized keeping in view the restructuring of the Income-tax rates over the past decade.XII. Deposit in Capital Gain Scheme should not exceed the due date for filing of returnThe provisions of section 54(2) stipulate that the amount of the capital gain which is not utilised by the assessee towards the purchase or construction of the new house before the date of furnishing the return of income under section 139, shall be deposited by him in capital gain account scheme. Section 54F(4) also provides exemption on similar lines.

6XIII. TDS and Sale of SIM cards/recharge couponsTelecommunication service providers are now facing new problems with regard to their obligation to deduct tax at source in respect of sale of SIM cards and recharge coupons at discounted price to distributors. Assessing Officers are treating the difference between actual price and discounted price of SIM card/recharge coupon as commission given to distributors, and accordingly, sending notice, treating the service providers as assessee's-in-default for not deducting tax at source under section 194H.

XIV. Sales consideration as per Sec. 50C is not relevant to compute exemption under Section 54F/54Section 50C of the Income-tax Act was introduced with effect from April 1, 2003 by the Finance Act, 2002. Section 50C was introduced to make a special provision for determining the full value of consideration in cases of transfer of immovable property.

XV. Characterization of surplus arising from sale of sharesShares and other securities can be held either as capital asset or stock-in-trade or both. However, the Income-tax Act does not contain any specific guidelines as to the characterization of any particular investment as capital asset or stock-in-trade. While this characterization is essentially a fact-specific determination, the absence of legislative guidance in this regard has resulted in a lot of uncertainty and avoidable litigation.

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