NANGIA & CO EXPERTS TAKE ON BUDGET 2016

FM Arun Jaitley in his Budget 2016 speech outlined the nine pillars on the basis of which he hopes to enhance India’s economic growth.Let’s see what Nangia & Co tax experts have to say about Union Budget 2016.

Views by Rakesh Nangia, Managing Partner, Nangia & Co.

A landmark budget where Corporates demands have been significantly met which includes deferment of POEM, RITES demands have been addressed and acceptance of number of the recommendations of Easwar Committee report to simply and rationalize the tax. The commitment of the FM to maintain the fiscal prudence by sticking to the fiscal deficit to 3.9 % in FY 2016 and 3.5 % in 2017 demonstrates the conviction to maintain fiscal sanity in the economy. Prudent balancing between populist demands for welfare spending vis rationalization and simplification of taxes and addressing the retrospective and indirect transfer of assets clearly reflects that the FM has struck all with one stroke. The budget every year is a step and opportunity in doing the undoing of the past though with the vision on the future. Support to export sector by widening of the scope of duty drawback, would benefit the exporters. Increase in service tax rate by 0.5% on all taxable services in form of Krishi Kalyan Cess, though Cenvatable, easing Cenvat Credit flow and removing exemption on garments are measures towards Good and Service Tax.

Views by Rahul Jain, Partner, Nangia & Co

The Union Budget, 2016 represents a clear breakaway and change in mindset of the Government from the earlier years. The Hon’ble Finance Minister has taken a number of bold decisions which should augur well for India going forward. Keeping everyone happy is never an easy task and the Finance Minister has effectively tried to maintain balance between giving what the taxpayers want without compromising on tax collections. Reduction in corporate tax rates has been commenced with extreme caution with the promise of more to come going forward. This is not altogether surprising that the Government had very little fiscal space to reduce taxes. The clear roadmap for phasing out the incentive provisions provides much needed clarity to taxpayers. The cut in incentives for R&D spend is a certain dampener given that India lags behind significantly in the research space. The deferment of POEM also comes across as a huge relief for taxpayers who will certainly have more time to set their affairs in order. The additional time will also allow for the Government to further clarify and provide guidance in the matter.

Views by Amit Agarwal, Partner, Nangia & Co

The Budget 2016 has been a bold and promising move by the Finance Minister. Amidst the global slowdown, the government has done well to cut the fiscal deficit and reporting the highest ever forex reserves at $ 350 billion and with inflation down to 5.4% from earlier 9.8%. If one looks at the Budget closely, the focus has been broadly on the Agricultural, Rural and Infracture sectors, which would increase employments and eventually boost demands which would in-turn lead to rise in the manufacturing segment. “Aam aadmi” continues to pay taxes at the existing rates whilst the rich get targeted with higher surcharge and tax on dividends received beyond INR 10 lacs during the year. This is promising and a welcome move. With the POEM guidelines being deferred, the industry can still expect a more pragmatic approach towards this issue. Tax rates at 29% and an incentive for newly incorporated manufacturing entities being taxed at 25% (subject to prescribed conditions) would boost the economy. With the introduction of a limited period window for a one-time settlement option to pay taxes on black money without any penalties or prosecution could see the light of the day. We have also seen another attempt to reduce litigation which at present stand at approx. 3 lac cases before the 1st appellate authority amounting to over 5.5 lac crores of disputed amounts. From transfer pricing perspective, we see minor amendments to the existing provisions with regards to introduction of Country by Country Reporting standards being introduced for corporates having group turnover in excess of EUR 750 Million. One still needs to look into the fine prints to understand the implications better. In all it’s has been a bold budgets and we could see the results in the following year.

Views by Nitish Sharma, Executive Director, Nangia & Co

The budget every year is a step and opportunity in doing the undoing of the past though with the vision on the future. Support to export sector by widening of the scope of duty drawback, would benefit the exporters. Increase in service tax rate by 0.5% on all taxable services in form of Krishi Kalyan Cess, though Cenvatable, easing Cenvat Credit flow and removing exemption on garments are measures towards Good and Service Tax. Service Tax has been exempted on construction of affordable housing up to 60 sq. mtrs. Excise Duty exemption presently available to concrete mix manufactured at site for use in construction work has also been extended to ready-mix concrete. This may provide relief to home buyers under affordable housing schemes. Krishi Kalyan Cess would increase service tax rate to 15%. w.e.f 1 June 2016. Unlike Swachh Bharat cess, input tax credit of the cess would be admissible for payment of this cess. The same would make services costlier for final consumers. Also, been proposed an Infrastructure Cess of 1% of small petrol, LPG, CNG cars; 2.5% on Diesel Cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs. Input tax credit of this Cess would not be admissible nor credit of any other tax or duty can be utilized for payment of this Infrastructure Cess. The same would lead to increase in cost of these vehicles. Measures have been proposed on refund of Cenvat credit, leading to reducing the time close and efforts in securing refund claims in case of export of services. However, Service tax assesses above a certain threshold would be required to file an annual return. A favorable amendment in form of reduction in penalties to encourage compliance and early dispute resolution are measures and signals to facilitates ease of doing business in India.

Views by Suraj Nangia, Partner, Nangia & Co

Addressing the menace of domestic black money, the Government has been proactive over the past year making changes in the rules by way of discouraging cash transactions, compulsory reporting of PAN, etc. Taking a constructive step to kill the menace of domestic black money, the Government has given a compliance window to domestic taxpayers to declare past transgressions and come clean by paying 45% of undisclosed income and assets (tax@30%, [email protected]% and penalty of 7.5%). This shows that the government has launched a two pronged attack on domestic blank money, one by curbing the generation of black money and second by asking domestic tax evader to come clean by disclosing their undisclosed income and assets.

Views by Sandeep Nagpal, Senior Manager, Nangia & Co

Overall, it is a balanced Budget prepared with a pragmatic approach, keeping in mind the sentiments of the investors, expectations of the taxpayers and the condition of Indian economy. The highlights of the budget include deferral of POEM test of residency, steps towards implementation of BEPS, commitment of not making retrospective amendments, improvised tax dispute resolution mechanism, profits linked deduction to start-ups, tax incentives for employment generation, measures to ensure timely processing of refunds and mandatory stay of demand on part payment.