The learned author identifies the amendments introduced by the finance act 2016 which impact corporate sector. he discussion is not confined only to provisions exclusively applicable to companies. some provisions which apply to companies and non company assessees have also been discussed.
Corporate sector is an integral part of the company of a country and india can be no exception. this sector, besides contributing substantial revenues to the Govt.'s kitty, also enriches the GDP of the country year-after-year. Hence, its natural that each year's Finance acts have number of provisions concerning Corporates. In later paragraphs, an account of the provisions contained in the Finance act 2016, specifically applicable to companies are discussed and measures also applicable to companies.
2.Finance act provisions concerning corporate sector
These, in brief, are us under
(1)Lower tax rate for companies
In the previous year's budget ,the FM had announced that in a period of next 4 years, he would bring down the rate of corporate tax to 25% from 30%. He has made a beginning for this year's budget. the proposal is that new manufacturing companies incorporated on or after march 1, 2016 will have an option either to adopt a reduced corporate tax of 27.55%(Where the income exceeds Rs. 1crore but does not exceed Rs. 10crore)or 28.84% (where income exceeds 10crore) provided such companies do not claim profit linked /invest linked deduction or do not avail of investment allowance and accelerated depreciation. The new startup companies who do not wish to claim any exemption can straight away claim tax rate of 25%. The conditions to avail of 25% rate are:
(a)The company should be set up and registered on or after 1st day of march, 2016;
(b) the company should be engaged in the business of manufacture or production of any article or thing and is not engaged in any another business;
(c)the company while computing its total income has not claimed any benefit under section 10AA, benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under part-C of chapter 6-A Other than the provisions of section 80JJAA; and
(d) the option is furnished in the prescribed manner before the due date of furnishing the return of income.
The issue is as to how the corporates will react to such proposals. The initiative seems to have been taken to give a boost to the manufacturing units in the country and make in india programme of the P M a success. But, the scheme is not expected to be enthusiastically welcomed in view of the fact that heavy capital is needed for manufacturing units and they may not like to continue with higher rates with incentives , which effectively bring down the rates to nearly 24%.
(1)new startups, involving innovation development , setup before april1,2019 will get 100% deduction of profits for a period of 3 years out of 5 years (subject to satisfaction of certain conditions ). However, the MAT would be applicable on such startups. some conditions have already been started earlier . Others relate to benefit -under section 54E&54GB.
(2)Effective corporate tax rate for small companies having turnover less than 5crore is reduced to 31.96%. the reduced corporate is expected to lead growth of such companies.
(3)the act taxes long term capital gains in the hands of non residents @10% which arise from the transfer of unlisted shares of a company in which public are not substantially interested, i.e. private companies. this ensures taxability of gains arising from transfer shares of unlisted companies and likely to incentivize corporate reorganization in india.
(4)If an assessee purchases a luxury car exceeding the price of Rs.10lakhs or purchase goods or avails of services exceeding 2lakhs in cash, tax at source is to be collected @1% This measure is intended to provide money trail and give clues regarding black money invested in such assets.
(5)The existing provision of sub-section (1A) in section 32AC of the act provides for investment allowance at the rate of 15% on investme4nt made in new assets (plant and machinery) exceeding Rs.25crore in a previous year by a company engaged in manufacturing or production of any article or thing subject to the condition that the acquisition and installation has to be done in the same previous year. this tax incentive is available up to 31-3-2017.
The dual condition of acquisition and installation can cause a genuine hardship in cases in which assets having been acquired could not be installed in same previous year . Hence sub section (1A ) in section 32AC has been amended so as to provide that the acquisition of the plant $machinery of the specified value has to be made in the previous year. However installation may be made by 31-03-2017.
The dual condition of acquisition and installation can cause genuine hardship in case in which assets have been acquired could not be installed in same previous year. Hence sub section (1A) of section 32AC has been amended so as to provide that the acquisition of the plant &machinery of the specified values has to be made in the previous year .however , installation may be made by 31-03-2017 in order to avail the benefit of investment allowance of 15%. It is further provided that where the installation of the new asset in a year or other than the year of acquisition, the deduction under this sub section shall be allowed in the year in which the new asset is installed.
(6) A person resident in india or a non resident having a permanent establishment in india , making payment exceeding in aggregate Rs.1lakh in a year towards online advertisement to a non resident, who does not have a permanent establishment in india would have to withhold tax at 6% of gross amount paid ,as an equalisation levy which is to discharged by way of withholding this provision is intended to bring alignment of domestic tax law with OECD recommendation on BEPS on digital economy . this provision would impact the income of non resident e-commerce giants providing online advertisement services (such as Google, yahoo, etc...)or other services to the companies in india
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Section 2 (42A) provides that short term capital asset means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer.
It is provided that in the case of a security ( other than a unit) listed in a recognised stock exchange in indiaor a unit of the unit trust of india established under the Unit Trust of India Act, 1963 or a unit of an equity oriented fund or a zero coupon bond, the provisions of this clause shall have effect as if for the words " thirty Six Months" the words " twelve months" had been substituted.
The Finance Act, 2016 has inserted a third proviso to section 2 (42A) from the assessment year 2017-18 so as to provide that in the case of a share of a compnay ( not being share listed in a recognised stock exchange in India), the provisions of section 2 ( 42A) shall have effect as if for the workds " thirty Six Months" the words " Twety Four Months " had been substituted.
The advertisement charges for advertising on google, facebook, Linkedin and other digital advertising platform are usually paid out of india in foreign currency, though entire advertising activity happens in india, and escapes any taxation in India.
The Indian Finance Minister Sri Arun Jaitly has introduced the equalization levy with effect from june 1, 2016. The provision for equalization are provided in Chapter VIII of the Finance Act 2016.
Brief summary of Provisions are as follows :
Rate of tax and Services Covered :
The equalization levy would apply @ 6% on amount paid or payable for Online advertisement, any provision for digital advertising space or any facility service for the purpose of online advertisement or any other service as may be notified later by government. Levy is applicable on amount paid or payable for above services to non-resident.
The scope of the levy may be expanded to cover a wider range of digital goods and services as time progresses.
Equalization levy is aimed at taxing business-to-business (B2B) e-commerce transactions. Levy is not applicable where payment is not for the purposes of carrying out business or profession.
Levy is not applicable if aggregate of payment to a non resident during the financial year does not exceed Rs 1 lakh.
Collection and deposit and filing of return :
The said tax of 6% is required to be deducted from the amount paid or payable to non-resident for specified services.
Tax so deducted is required to deposited on a monthly basis within 7th of following month. Interest at the rate of 1 % per month or part of month is applicable for delayed deposit of taxes.
Annual statement with respect to levy is required to filed with specified period form end financial year in which service are provided. To rectify any mistake or omission in the statement filed revised statement can be filed within 2 years from end of financial year in which service is provided. Statement will be processed and intimation for any demand or refund will be sent with in end of 1 year from the end of financial year in which statement is filed. Any mistake in such intimation can be rectified within one year from the end of financial year in which intimation was issued.
Non deduction of equalization of levy would attract penalty equal to amount of equalization levy in addition to payment of equalization levy and interest on delayed payment.
Where Equalization Levy is deducted but not deposited with government would attract penalty of Rs 1,000 per every day during which such failure continues. This penalty is subject to maximum limit of equal to amount of equalization levy.
Non filing of annual statement would attract penalty of Rs 100 for each day during which the failure continues.
No penalty shall be imposed where assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.
Chapter provides for appeal to Commissioner ( appeals) and to Income Tax Tribunal against order levying penalty.
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