Thursday, March 3, 2016

There were enormous expectations from the Finance Minister

There were enormous expectations from the Finance Minister as this is their 3rd budget. Announcements regarding GST were expected, however there was no commitment of a date for GST introduction in the Finance Minister’s speech apart from a mention that focus would be to introduce it at the earliest. Introduction of 12 new benches of the CESTAT should help in reducing the congestion currently existing in the litigation system.

However, levy of new Krishi Kalyan Cess of 0.50% on all services, though creditable, is a setback as it would increase the cost of services. This cess would have an impact on all aspects of the economy, since all taxable services will attract this cess. Further, levying and reporting service tax would be more complex as service tax and Krishi Kalyan cess would be creditable but Swachh Bharat cess would not be. Overall, it’s a budget with some reform but it leaves us with an expectation that more could have been done

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The Budget has taken a step forward in rationalizing the tax regime

The Budget has taken a step forward in rationalizing the tax regime through sunset provisions for certain exemptions and deductions. It will also give a boost to manufacturing and to SMEs through the reduction in tax rates. Startups will be encouraged by the 3-year tax holiday and capital gains exemption for investors. The special patent regime is an innovative idea and will encourage indigenous research and development. The rules for place of effective management have been deferred by one year in response to representations by stakeholders.

This will give time to companies to make adjustments to align with the rules. The proposals such as stay of demand, easing of TDS requirements, the alternative facility for non-residents who do not have PAN, the procedure for e-assessment and time limits for passing effect orders will facilitate a taxpayer-friendly environment and in turn the objective of ease of doing business.

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EPF tax is introduced to encourage employees to go for pension products: Govt.

In order to bring parity in tax treatment of different types of pension plans, the Finance Bill, 2016 proposed to amend Section 10 to provide that 40% of total corpus withdrawn at the time of retirement under recognized provident funds and NPS would be exempt. However, there seems to be lack of understanding about such proposed changes. Thus, the Govt. has released following clarifications:

i) The purpose of this reform of making the change in tax regime is to encourage more number of private sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund Account.