India: India budget’s key tax proposals
International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX
Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

India: India budget’s key tax proposals

Sponsored by

logo.png
India budget’s key tax proposals

India's annual budget for 2017-18 was announced on February 1 2017.

Dharawat
Gangadharan

Rakesh Dharawat

Hari Gangadharan

India's annual budget for 2017-18 was announced on February 1 2017. The key tax proposals announced are briefly summarised below.

Corporate tax

The corporate tax rate has been reduced to 25% for companies with a turnover of less than INR 500 million ($7.5 million) in the financial year 2015-16, while the rate for companies with a larger turnover remains at 30%.

Finance Minister Arun Jaitley has also proposed that indirect transfer taxation (i.e. taxation of gains from transfers of foreign company shares deriving value from underlying assets in India) will not be applicable to Category-I or Category-II foreign portfolio investors (FPIs). This exclusion will apply with retrospective effect from financial year 2011-12.

In addition, the concessional withholding tax rate of 5% on interest payments in case of rupee denominated bonds issued to FPIs will now be available for interest payable up to July 1 2020. This was due to expire in 2017. However, the transfer of rupee denominated bonds by one non-resident to another will not trigger capital gains. The benefit of exclusion of rupee appreciation on redemption of rupee denominated bonds has been extended to secondary holders (this was earlier available only to subscribers of such bonds).

Separately, the conversion of preference shares into equity shares will not trigger capital gains tax under the budget proposals. In such cases, the cost of acquisition and the period of holding such equity shares will be the same as that of the original preference shares.

In the case of transferring unquoted equity shares, gains will be calculated based on fair market value (FMV) if the consideration received is lower than the FMV. The manner of determining FMV will be prescribed.

The provisions relating to receipt of specified property without consideration, or for inadequate consideration, have been overhauled. Going forward, any specified property (including immovable property, listed, unlisted shares, etc.), received without adequate consideration by any taxpayer, will be taxed under the head 'income from other sources'. However, business reorganisations and other specified exclusions are carved out from the same.

The time limit for completion of tax assessments (tax audits) by income-tax authorities have been significantly curtailed.

Transfer pricing

The finance minister proposed cutting the scope of domestic transfer pricing provisions in the budget. Going forward, only transactions between two domestic related parties where one of the parties is claiming a profit-linked deduction will be subject to domestic transfer pricing.

Separately, thin capitalisation rules are proposed to be introduced in respect of interest payments exceeding INR 10 million paid to associated enterprises (not applicable to banking and insurance companies). Key aspects include:

  • Deduction of such interest is restricted to actual interest paid/payable or 30% of EBITDA, whichever is lower;

  • Excess interest paid will be allowed to be carried forward for eight years; and

  • Under certain circumstances, loans taken from a third-party lender will be deemed to be from an associated enterprise such as if an associated enterprise provides an implicit/explicit guarantee to the third-party lender.

Finally, taxpayers will be required to carry out secondary adjustments where a primary adjustment to the transfer price has been made in certain circumstances. It is also provided that where a primary adjustment exceeding INR 10 million has been made and funds have not been brought into India, such amounts will be treated as an advance made and interest will be imputed thereon in a prescribed manner.

Rakesh Dharawat (rakesh.dharawat@dhruvaadvisors.com) and Hari Gangadharan (hariharan.gangadharan@dhruvaadvisors.com)

Dhruva Advisors

Tel: +91 22 6108 1000

Website: www.dhruvaadvisors.com

more across site & bottom lb ros

More from across our site

Proposals by HM Revenue and Customs to raise standards in the advisory market are ‘well overdue’, one partner declared
An intimate understanding of a client’s sector is essential to winning new business, a survey of over 28,000 corporate counsel reveals
‘Auditors are failing to perform their core function’ according to a think tank; in other news, White & Case adds a tax partner in Luxembourg
An overhaul of EU import taxes could spell the end of an exemption for cheap parcels
Sharma, managing director for A&M in the United Arab Emirates, tells ITR about intense time pressures, mimicking Jurgen Klopp and what makes tax cool
AI will speed up some of the most laborious TP processes without making human input redundant, argues Hank Moonen, CEO of TaxModel
Firms with a broad geographic reach are more likely to win work, especially from global companies with high turnovers, according to survey data of nearly 29,000 corporate counsel
Australian businessman Gordon Merchant used EY’s advice to offset an A$85 million capital gain, according to the Federal Court
Griggs has been drafted in ahead of schedule as the incumbent Tim Ryan departs for Citigroup; while the Netherlands plans to scrap a 15% share buyback tax
Authorities must ensure that Russian firms do not use transfer pricing schemes to increase profits made from oil sold in different markets, advocacy organisations have argued
Gift this article