Milan K Shah*, Director-Tax and Regulatory Services, PwC India. *Ably supported by Issac Merchant, Assistant Manager, PwC India
The Hon'ble Finance Minister, Arun Jaitley, presented the Union Budget 2017 in the backdrop of the demonetization initiative, upcoming important assembly elections in key states, and global headwinds of an unprecedented nature. In addition, it was the aftermath of major economic and political developments in India. Building on last year's theme of Nine Pillars for transforming India, this year's Budget theme is Transform, Energize, and Clean India or TEC India. And while there were no specific proposals for the broadcasting and cable sector, several proposals in Budget 2017 are expected to directly affect the sector.
The mission statement to reduce income tax rates from 30 to 25 percent for domestic companies over a period of five years was laid out in Budget 2015. It is now proposed to reduce the tax rate for existing MSMEs, with annual turnover of up to 50 crore during FY 2015-16, to
25 percent. The basic tax rate for other domestic companies (30 percent) and foreign companies
(40 percent) is unchanged. To this extent, the proposal will benefit existing domestic companies in the sector within the capped turnover in FY 2015-16.
Acknowledging the practical difficulties in removing or reducing minimum alternate tax (MAT) at present, the finance minister instead has extended the carry forward period of MAT credit from 10 years to 15 years. Also, for companies to whom Ind AS applies, MAT provisions have been amended to give effect to transitional and year-on-year differences, which may arise on Ind AS adoption.
To further encourage the start-up environment in the country, the government now proposes to allow eligible start-ups to claim 100 percent tax holidays in three out of seven years. It also seeks to relax restrictions on shareholdings to claim set-off of past losses, and allow start-ups to claim set-off of losses incurred in the initial seven years from their incorporation, if all the shareholders continue to hold shares in the year of the loss and set-off, irrespective of whether the 51 percent threshold is breached.
As a part of the government's objective to promote digital economy and curb cash transactions, it proposes to disallow any cash expenditure in excess of 10,000. Moreover, a new provision curbing cash transactions in excess of 300,000 per person in a day or per transaction or per event/occasion from a person, is proposed. And in the event of a default, the recipient will be penalized, and the penalty may amount to the sum received.
From an M&A perspective, there are a number of amendments that have been proposed in the Budget. Conversion of preference shares into equity shares will now be tax-exempt. In the case of sale of unquoted shares, capital gains will be computed by assuming the fair market value (FMV) as consideration, and rules to determine the FMV are to be prescribed. Capital gain tax exemption on sale of listed securities is now restricted to transactions where STT was paid both at the time of purchase and sale of such shares.
Another important proposal is the limitation on interest paid to non-resident associated enterprises (to
30 percent of EBITDA), although they will be able to carry forward any excess interest for eight years. Moreover, introduction of a secondary adjustment is proposed in cases where a transfer pricing adjustment is made for international transactions with a related party.
In addition, there are a number of important amendments proposed in tax compliance and assessment procedures, with a view to simplify and reduce timelines for tax administration.
On the indirect tax front, the finance minister has left tax rates unchanged and only amended a few areas that needed attention in sync with the government's aspiration to roll out GST by July 1, 2017.
Although the pre-Budget expectations of the broadcasting and cable sector have not been specifically considered in the Budget, it is important to consider the implications of the key amendments mentioned above as well as the other amendments proposed.