BUDGET HIGHLIGHTS AND REACTIONS

A budget centered around inclusive growth with focus on rural India, agriculture, health and education. However, the real challenge lies in the execution.

While we await the fine print of the budget, shared below are initial reactions to the Budget presented on 29th February 2016.

Start-ups

Welcome announcements
  • Presumptive taxation (Section 44AD) requires the assessee to not maintain books of account and applies a flat rate of tax. The limit for qualifying for such taxation has been increased vis-à-vis a turnover of.INR 2 crs. vs. the old limit of INR 1 cr, thereby increasing the net of small enterprises and startups which can avail the benefit.

  • The government seems to be making the first move towards reducing corporate tax rates for small and medium enterprises. Companies with a turnover of less than INR 5 cr. in financial Year 2014-15 would attract tax rate of 29% + surcharge + cess. It seems that the rate may ultimately be corrected over the next few years by a percent change year on year.

  • 100% deduction of profits for 3 years out of 5 years set up during April 2016 – March 2019. MAT will apply. The announcement is welcomed however, may not account to much benefit for startups given the initial loss years. Even for profitable companies, with MAT being applicable, the net benefit would be 10-12% rather than a full exemption as was anticipated.

  • Compliance – Amendments to the Companies Act for fast registration of companies and introduction of bankruptcy laws would expedite and reduce compliances, thereby contributing to the startup ecosystem.

  • Skill development received wide focus with 1500 multi-skill training institutes to be set up alongwith INR 1804 crs. being allocated for skills development.

  • Further support to Make In India with reduction in corporate tax for new manufacturing companies incorporated on or after 1st March 2016 to 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation. Further, changes in customs and excise duty for certain inputs to enhance the Make in India initiative.

What’s amiss
  • Allocation of Rs. 500 crs. to SC/ST and females – In a space which is already struggling to receive funding and support as the ecosystem develops, introducing reservations leads to demise of innovation and contradicts the very spirit of entrepreneurship which should be free for all to explore.

  • Angel tax continues to exist with marginal relief vis-à-vis holding period rather than the taxation rates and pegging startup investments with listed investments.

  • Long term capital gain not removed but slight recourse provided by reducing the period for getting the benefit of long term capital gains to 2 years as opposed to 3 years.

  • No visible sign of introduction of GST.

Direct/ Indirect Tax

  • Taxing the super-rich continues with an increase in surcharge to 15% from 12%. The concept of surcharge was introduced by Mr. Chidambaram in 2013 as a tax for one fiscal year. Further, tax to be deducted at source @ 1% for luxury cars (i.e. cars purchased for INR 10 lakhs or more). Introduction of the infrastructure cess ranging from 1% to 4% on cars makes buying vehicles more expensive.

  • Voluntary disclosures with an effective rate of 45% and immunity from prosecution may add as a step towards reducing black money.

  • Accelerated the Dispute Resolution Process via multiple announcements ranging from the introduction of a new Dispute Resolution Scheme, one-time scheme of Dispute Resolution for ongoing cases under retrospective amendment to time limit of 1 year for petitions seeking waiver of interest/ penalty.

  • Introduction of Krishi Kalyan Cess @ 0.5% right after the Swachh Bharat Cess of 0.5% and the increase in service tax, makes all services dearer.