The Union Budget 2017 carries a distinct set of tax proposals for each of the three broad group of taxpayers—individuals, domestic corporates and multi-national enterprises. There are also a set of tax proposals to capture those who have historically avoided being in the tax net.
Coming to the first group of individual taxpayers, who the finance minister applauded for being honest and compliant, the proposals have two features: a marginal relief to those in the lowest tax-bracket (earning less than Rs 500,000 per annum) by reducting their tax rate to 5 per cent, and a surcharge of 10 per cent on those who earn greater than Rs 50 lakhs and up to Rs 1 crore. Those earning higher than Rs 1 crore were already subjected to a surcharge of 15 per cent. The finance minister’s intent for not exempting those earning less than Rs 5 lakh from a personal tax liability, albeit it is quite nominal, is possibly to keep maximum people in the tax system. Hidden in the fine print: a tax deduction on housing interest on rental properties can be set off against other incomes (such as salary) only to the extent of Rs 2 lakh; it’s possible to roll forward the balance to the subsequent year.
The domestic corporates have always been divided into various categories based on their income, as the surcharges and cess are varied as the earnings go higher. Now, to fulfil his commitment to lower the corporate tax rates, the minister has taken a staggered approach. Last year, he lowered the rate to 25 per cent for new manufacturing companies that refrain from availing tax concessions. This year, he has lowered it for all the corporates with a turnover of less than Rs 50 crore. Maybe, the next two years, to fulfil his roadmap to lower corporate taxes to 25 per cent in four years since 2015, he could bring the rate down for all. A start-up gets an extended period of seven years, within which it can enjoy a three-year tax holiday. So, the corporate sector too has been given some reliefs that can help them improve bottom-lines, invest more and create jobs.
For multi-national enterprises, the transfer pricing rules have been a bugbear. These have been made more extensive with secondary adjustments. However, it is a relief that more sensible rules have been provided for indirect transfers.
The budget raised the concern that the anecdotal data still indicates a low tax compliance in India. Only 1.72 lakh people show an annual income of more than Rs 50 lakh. Holding the cash economy responsible for this situation, the tax laws now have a slew of measures to ensure the country moves to digital payment system (now both direct tax laws and the shift to GST is likely to help this initiative), build a wider robust tax base to enable sharing the tax burden with a larger number, and allow further reduction in tax rates.
(The writer is leader, Direct Tax, BMR & Associates LLP. With inputs from Kaushik Saranjame, Director.)
