CA Partho Sathi Ghosh
A lot was expected from the Honorable Finance Minister when he rose to present the budget of the Union for the year 2015-16 on February 28, 2015. Expectations were riding high and it was believed that budget will focus on growth and investments and will provide assistance to common man from inflation, increase in tax slabs was highly expected.
There are various stakeholders and factors in the economy, but i will keep the discussion here limited to tax implications on corporate and on salaried Class (common man)
What it means for Corporate:-
The minister began his speech by emphasizing the need to revive growth and investment to ensure job creation for the youth. As expected he mentioned his intent on implementation of GST from the next year.
However the most important announcement was in relation to tax rates, the finance minister proposed to reduce the rate of corporate tax from 30% to 25% over the next year 4 years. It is a welcome decision and must have made the companies happy, however in his speech the minister also mentioned that this process of reduction has to be necessarily accompanied by rationalization and removal of various kinds of tax exemptions and incentives for corporate tax payers, which account for large number of tax disputes. What would be important to see is what exemptions and incentives does the government will do away with.
It could be a classic case of giving something from one hand and taking it back from the other.
Further owing to the investor sentiments and the government’s intent to enhance investments, applicability of GAAR has been deferred by two years and it was mentioned that when implemented, GAAR would apply prospectively.
We also see a proposal to reduce the rate of income tax on royalty and fees for technical services from 25% to 10% with intent to encourage new ventures in India. The threshold limit for domestic transfer pricing is also increased from 5 Cr to 20 Cr.
Abolition of wealth tax is a welcome move, but now details of wealth have to be reported in income tax returns. Have to wait and see whether the return filing becomes complex or not.
What it means for the common man:-
The common man was expecting a rise in the tax exemption limits, so it was a disappointment to see the limits remain unchanged. The minister in his speech mentioned benefits to middle class taxpayers as one of the broad themes, and have made certain proposals which are very welcome. Among them are
Although the above changes will help an individual reduce his tax liability, but it doesn’t increase his disposable income.
Further we also see a rise in service tax rates to 14%.Further an enabling provision is made to empower the Central Government to impose a Swatch Bharat cess on all or certain taxable services at a rate of 2%. Which mean that the effective rate of service tax will increase to 16%.
Needless to say it will impact the middle class as essential services will become costlier. Not good for the middle class people, since exemption limits remain same no increase in disposable income but expenses on movies, hotels, travel, legal, banking , restaurants etc all will increase.
What it means for the economy:
The intent of the budget is very clear, the government wants to encourage setting up of business in India and wants to facilitate the ease of doing business also. Growth of industries in India is necessary for job creation and as expected the focus is on encouragement to corporate.
The government by giving benefits in the form of deductions rather than increasing the exemption limits to individuals had shown that its intent is to increase the amount available for investments and not to increase short term demands. This is in line with its strategy of enhancing investments.
The above is just an overview on the finance bill, a detailed discussion on various provisions will follow. For any queries or discussion feel free to contact at [email protected]