The Finance Minister in his Budget Speech, 2015 has indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions. The Government proposed to implement this decision in a phased manner. In this regard, broad guiding principles had been put in the public domain for receiving comments from the stakeholders. These guiding principles are listed below for reference.
i. Profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate tax
ii. The provisions having a sunset date will not be modified to advance the sunset date. Similarly the sunset dates provided in the Act will not be extended.
iii. In case of tax incentives with no terminal date, a sunset date of 31.3.2017 will be provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions of the Act.
iv. There will be no weighted deduction with effect from 01. 04.2017.
Based on the above guiding principles and taking into account the response of the stakeholders on the proposed phasing out plan, the following incentives under the Act are proposed to be phased out in the manner as tabulated below in Table 1 and Table 2:
Table 1 : Proposed Phase out plan of incentives (Profit linked Deductions/weighted deduction) available under the Act.
| Sl. No | Section/ | Incentive currently available in the Act |
Proposed phase out measures/ Amendment |
| 1 | 10AA- Special provision in respect of newly established units in Special economic zones (SEZ). | Profit linked deductions for units in SEZ for profit derived from export of articles or things or services | No deduction shall be available to units commencing manufacture or production of article or thing or start providing services on or after 1st day April, 2020. (from previous year 2020-21 onwards). |
| 2 | 35AC-Expenditure on eligible projects or schemes. | Deduction for expenditure incurred by way of payment of any sum to a public sector company or a local authority or to an approved association or institution, etc. on certain eligible social development project or a scheme. | No deduction shall be available with effect from 1.4.2017 (i.e from previous year 2017-18 and subsequent years). |
| 3 | 35CCD-Expenditure on skill development project. | Weighted deduction of 150 per cent on any expenditure incurred (not being expenditure in the nature of cost of any land or building) on any notified skill development project by a company. | Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards). |
| 4 | Section 80IA; 80IAB, and 80IB – Deduction in respect of profits derive from
(a) development, operation and maintenance of an infrastructure facility (80-IA) (b) development of special economic zone (80-IAB) (c) production of mineral oil and natural gas [80-IB(9)] |
100 per cent profit linked deductions for specified period on eligible business carried on by industrial undertakings or enterprises referred in section 80IA; 80IAB, and 80IB. | No deduction shall be available if the specified activity commences on or after 1st day April, 2017. (i.e from previous year 2017-18 and subsequent years). |
These amendments mentioned in table 1 will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 201 7-18 and subsequent years.
Table 2 : Proposed Phase out plan of incentives (Accelerated Depreciation/Weighted Deduction) available under the Act.
| Sl. No | Section/ | Incentive currently available in the Act |
Proposed phase out measures/ Amendment |
| 1 | 32 read with rule 5 of Income-tax Rules, 1962- Accelerated Depreciation. | Accelerated depreciation is provided to certain Industrial sectors in order to give impetus for investment. The depreciation under the Income-tax Act is available up to 100% in respect of certain block of assets. | To amend the new Appendix IA read with rule 5 of Income-tax Rules, 1962 to provide that highest rate of depreciation under the Income-tax Act shall be restricted to 40% w.e.f 01.4.2017. (i.e from previous year 2017-18 and subsequent years).
The new rate is proposed to be made applicable to all the assets (whether old or new) falling in the relevant block of assets. |
|
2 |
35(1)(ii)- Expenditure on scientific research. | Weighted deduction from the business income to the extent of 175 per cent of any sum paid to an approved scientific research association which has the object of undertaking scientific research. Similar deduction is also available if a sum is paid to an approved university, college or other institution and if such sum is used for scientific research. | deduction shall be restricted to 150 per cent from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20) and deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-2 1 onwards). |
| 3 | 35(1)(iia)-
Expenditure on scientific research. |
Weighted deduction from the business income to the extent of 125 per cent of any sum paid as contribution to an approved scientific research company. | Deduction shall be restricted to 100 per cent with effect from 01.04.2017 (i.e. from previous year 2017-18 and subsequent years). |
| 4 | 35(1)(iii)- Expenditure on scientific research. | Weighted deduction from the business income to the extent of 125 per cent of contribution to an approved research association or university or college or other institution to be used for research in social science or statistical research. | Deduction shall be restricted to 100 per cent with effect from 01.04.2017 (i.e. from previous year 2017-18 and subsequent years). |
| 5 | 35(2AA)- Expenditure on scientific research. | Weighted deduction from the business income to the extent of 200 per cent of any sum paid to a National Laboratory or a university or an Indian Institute of Technology or a specified person for the purpose of approved scientific research programme. | Weighted deduction shall be restricted to 150 per cent with effect from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20).
Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-2 1 onwards). |
| 6 | 35(2AB)- Expenditure on scientific research. | Weighted deduction of 200 per cent of the expenditure (not being expenditure in the nature of cost of any land or building) incurred by a company, engaged in the business of bio-technology or in the business of manufacture or production of any article or thing except some items appearing in the negative list specified in Schedule-XI, on scientific research on approved in-house research and development facility. | Weighted deduction shall be restricted to 150 per cent from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20).
Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards). |
| 7 | 35AD- Deduction in respect of specified business. | In case of a cold chain facility, warehousing facility for storage of agricultural produce, an affordable housing project, production of fertiliser and hospital weighted deduction of 150 per cent of capital expenditure (other than expenditure on land, goodwill and financial assets) is allowed. | In case of a cold chain facility, warehousing facility for storage of agricultural produce, hospital, an affordable housing project, production of fertilizer, deduction shall be restricted to 100 per cent of capital expenditure w.e.f. 01.4.2017 (i.e. from previous year 2017-18 onwards). |
| 8. | 35CCC- Expenditure on notified agricultural extension project. | Weighted deduction of 150 per cent of expenditure incurred on notified agricultural extension project. | Deduction shall be restricted to 100 per cent from 1.4.2017 (i.e from previous year 2017-18 onwards). |
These amendments mentioned in table 2 will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 201 8-19 and subsequent years.
Clause 8 of Finance Bill 2016
Clause 8 of the Bill seeks to amend section 1 0AA of the Income-tax Act relating to special provisions in respect of newly established Units in Special Economic Zones.
The aforesaid section provides that an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, who begins from his unit for manufacturing or producing articles or things or providing any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, is allowed deduction on the profits derived from the export of articles or things or services.
It is proposed to amend sub-section (1) of the said section 10AA so as to provide that the deduction under this section is available only for an above referred enterpreneur whose unit begins to carryout above referred activity before the 1st day of April, 2021.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 15 of Finance Bill 2016
Clause 15 of the Bill seeks to amend section 35 of the Income-tax Act relating to expenditure on scientific research.
Sub-clause (i) of the said clause seeks to amend sub-section (1) of the aforesaid section 35.
Clause (ii) of sub-section (1) of the said section provides for weighted deduction to the extent of one hundred seventy-five per cent. of any sum paid to a scientific research association which has the object of undertaking scientific research or to a university, college or other institution to be used for scientific research.
It is proposed to amend the said clause (ii) so as to reduce the said weighted deduction from one hundred seventy-five per cent. to one hundred fifty per cent. from financial year 2017-2018 to 2019-2020. It is further proposed to reduce the said weighted deduction to one hundred per cent. from the financial year 2020- 2021 and subsequent years.
Clause (iia) of sub-section (1) of the said section provides weighted deduction in respect of contribution to a company engaged in scientific research.
It is proposed to amend the said clause (iia) so as to reduce the said weighted deduction from one hundred twenty-five per cent. to one hundred per cent. from financial year 2017-2018 and subsequent years.
Clause (iii) of sub-section (1) of the aforesaid section provides that weighted deduction shall be allowed in respect of contributions made to an approved university, college or institution to be used for research in social science or statistical research.
It is proposed to amend the said clause (iii) so as to reduce the said weighted deduction from one hundred twenty-five per cent. to one hundred per cent. from financial year 2017-2018 and subsequent years.
Sub-clause (ii) of the said clause seeks to amend sub-section (2AA) of the aforesaid section 35.
The existing provisions contained in clause (a) of sub-section (2AA) of the said section provide for a weighted deduction to the extent of two hundred per cent. of any sum paid to a National Laboratory or a University or an Indian Institute of Technology or a specified person for the purpose of an approved scientific research programme.
It is proposed to amend the said clause (a) so as to reduce the said weighted deduction from two hundred per cent. to one hundred and fifty per cent. from financial year 2017-2018 to 2019-2020. It is further proposed to reduce the said weighted deduction to one hundred per cent. from financial year 2020-2021 and subsequent years.
Sub-clause (iii) of the said clause seeks to amend sub-section (2AB) of the aforesaid section 35.
The existing provisions contained in clause (1) of sub-section (2AB) of the said section provide for weighted deduction of two hundred per cent. of the expenditure incurred by a company or scientific research on an approved in-house research and development facility.
It is proposed to amend the said clause (1) so as to reduce the said weighted deduction from two hundred per cent. to one hundred and fifty per cent. from financial year 2017-2018 to 2019-2020. It is further proposed to reduce the said weighted deduction to one hundred per cent. from financial year 2020-2021 and subsequent years.
These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018- 2019 and subsequent years.
Clause 17 of Finance Bill 2016
Clause 17of the Bill seeks to amend section 35AC of the Income-tax Act relating to expenditure on eligible projects or schemes.
The existing provisions of section 35AC, inter alia, provides for deduction for expenditure incurred by way of payment of any sum to a public sector company or a local authority or to an approved association or institution, etc., on certain eligible social development project or a scheme not related to business.
It is proposed to insert a new sub-section (7) in the aforesaid section so as to provide that the deduction under this section shall not apply, in respect of any assessment for the assessment year commencing on the 1st day of April, 2018.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to assessment year 2017-2018 and subsequent year.
Clause 18 of Finance Bill 2016
Clause 18 of the Bill seeks to amend section 35AD of the Income-tax Act relating to deduction in respect of expenditure on specified business.
Under the existing provisions of aforesaid section, deduction in respect of expenditure of capital nature incurred, wholly or exclusively, during the year for a specified business is allowed. Sub-section (1A) of the aforesaid section provides that where the specified business is of the nature referred to in sub-clause (i) or sub-clause (ii) or sub-clause (v) or sub-clause (vii) or sub-clause (viii) of clause (c) of sub-section (8), the deduction under subsection (1) shall be allowed to an amount equal to one and one-half times of the expenditure referred to therein.
It is proposed to omit the said sub-section (1A).
It is further proposed to amend sub-section (2) of the said section 35AD so as to provide the deduction under this section to an assessee engaged in developing, operating and maintaining or developing, operating and maintaining the infrastructure facility.
It is also proposed to amend sub-section (8) of the said section so as to define the expression “infrastructure facility” in the said section in the light of amendment proposed to sub-section (2) of the said section.
These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018- 2019 and subsequent years.
Clause 19 of Finance Bill 2016
Clause 19 of the Bill seeks to amend section 35CCC of the Income-tax Act relating to expenditure on agricultural extension project.
The aforesaid section provides that where an assessee incurs any expenditure on agricultural extension project notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction of a sum equal
to one and one-half times of such expenditure. Sub-section (2) of the said section provides that where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provisions of the Income-tax Act for the same or any other assessment year.
It is proposed to amend the said section so as to reduce the deduction from one hundred fifty per cent. to one hundred per cent.
This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years.
Clause 20 of Finance Bill 2016
Clause 20 of the Bill seeks to amend section 35CCD of the Income-tax Act relating to expenditure on skill development project.
The aforesaid section provides that where a company incurs any expenditure (not being expenditure in the nature of cost of any land or building) on any skill development project notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction of a sum equal to one and one-half times of such expenditure. Sub-section (2) of the said section provides that where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provisions of the Income-tax Act for the same or any other assessment year.
It is proposed to amend the said section so as to reduce the deduction from one hundred fifty per cent. to one hundred per cent. from the assessment year beginning on or after the 1st day of April, 2021.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 39 of Finance Bill 2016
Clause 39 of the Bill seeks to amend section 80-IA of the Income-tax Act relating to deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.
Clause (i) of sub-section (4) of aforesaid section, inter alia, provides that any enterprise carrying on business of developing or operating and maintaining any infrastructure facility shall be allowed deduction as specified subject to conditions specified therein.
It is proposed to amend the said section so as to provide that this section shall not apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 40 of Finance Bill 2016
Clause 40 of the Bill seeks to amend section 80-IAB of the Income-tax Act relating to deductions in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone.
Under the aforesaid section, an enterprise being a developer in a notified Special Economic Zone, who has commenced the business of developing a Special Economic Zone on or after 1st day of April, 2005 shall be allowed deduction of an amount equal to one hundred per cent. of the profits and gains derived from such business.
It is proposed to amend the said section so as to provide that this section shall not apply to any enterprise which commences the business activity on or after the 1st day of April, 2017.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 42 of Finance Bill 2016
Clause 42 of the Bill seeks to amend section 80-IB of the Income-tax Act relating to deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.
Sub-section (9) of the aforesaid section, inter alia, provides deduction at the rate of one hundred per cent. of the profits of an undertaking located in specified areas subject to fulfilment of certain conditions.
It is proposed to amend clauses (ii), (iv) and (v) of the said subsection so as to provide that such clauses of the said section shall not apply to any enterprise which commences the business activity on or after the 1st day of April, 2017.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.
[Clause 8, 15, 17, 18, 19, 20, 39, 40 & 42]
