Finance Minister Arun Jaitley takes a protectionist stance in favour of domestic companies, increases customs duty on certain products.
In a major step towards tax simplification, Finance Minister Arun Jaitley announced rationalisation of tax deduction at source provisions and abolished 13 cesses levied by various ministries in the Budget for 2016-17.
Jaitley also offered a marginal reduction in corporate tax rate for small enterprises, while simultaneously announcing sunset dates for exemptions to simplify administration and improve India's competitive edge globally.
The Budget also gave a thrust to domestic manufacturing and Make in India by correcting the inverted duty structure by way of increasing customs duty on finished goods.
Accepting a few recommendations made by the Justice RV Easwar (retd) Committee, the finance minister announced the rationalisation of TDS to improve the cash flow position of small taxpayers who get their funds blocked due to the current provisions.
Long overdue, the revision of TDS limits will be a boost for consultants and brokers.
The TDS threshold on accumulated balance due to an employee has been increased from Rs 30,000 to Rs 50,000 and for compensation payment on acquisition of certain immovable property it has been raised to Rs 2.5 lakh from Rs 2 lakh.
While the threshold for TDS deduction for insurance commission has been reduced to Rs 5,000 from Rs 10,000, the rate has been cut to 5 per cent from 10 per cent.
The TDS limit for commission on brokerage has been trebled to Rs 15,000 and the rate halved to 5 per cent. The amendments will come into effect from June 1, 2016.
"Also, non-residents without PAN are currently subjected to a higher rate of TDS. However, amendment to relevant provision will allow that on furnishing of alternative documents, such higher rate will not apply," Jaitley said in his Budget speech.
The Easwar panel submitted the first report in January with recommendations to reduce litigation and a transparent and simpler tax regime for small taxpayers.
The corporate tax rate for companies with a turnover of Rs 5 crore (Rs 50 million) or less will be lowered to 29 per cent plus surcharge and cess from 30 per cent plus surcharge and cess.
Besides, in what could give a thrust to entrepreneurship, Jaitley announced a lower corporate tax rate of 25 per cent for all new manufacturing companies incorporated from March 1, 2016 onwards, given that they do not claim any exemptions.
This is in line with the government's Budget proposal last year to lower corporate tax rate to 25 per cent over four years, while simultaneously phasing out exemptions.
"There has been a tax reduction only for the small and new units as the government is not getting anything out of the exemption withdrawal next year. We are going to wait for the sunset dates of exemptions" Jaitley said.
The corporate tax rate is 30 per cent but it is effectively 23 per cent due to many exemptions.
The revenue foregone in 2015-16 on account of exemptions stood at over Rs 62,000 crore (Rs 620 billion).
According to the roadmap announced, the tax deduction on account of accelerated depreciation, which goes up to 100 per cent, will be capped at 40 per cent from April 1, 2017 onwards.
The deduction rate for in-house scientific research, which currently stands at 200 per cent, would be cut to 150 per cent from April 1, 2017 and 100 per cent from April 1, 2020.
The weighted deduction for skill development will continue up to April 1, 2020, while exemptions to SEZ units will be available to only those units that commence activity before March 2020.
"There are also provisions for a reduced rate of tax for new manufacturing companies and small companies. This will help simplify the tax regime and introduce a level playing field," said Sunil Shah, partner, Deloitte Haskins & Sells LLP.
Continuing the protectionist stance to support domestic companies, Jaitley announced an increase in customs duty in aluminum products to 10 per cent from 7.5 per cent.
The duty on golf cars was raised to 60 per cent from 10 per cent.
E-readers that were exempt from customs duty saw a levy of 7.5 per cent. Jaitley also announced an increase in levies on components like printed circuit boards and batteries and chargers expected to reflect in mobile phones.
The Budget proposed to withdraw basic customs duty (10 per cent) and countervailing duties (12.5 per cent) on import of chargers, adaptors, battery, wired headsets and speakers used in mobile phones.
Jaitley said that suitable changes are proposed to be made in customs and excise duty rates on certain inputs, raw materials, intermediaries and components and certain other goods.
The Finance Minister announced a new dispute resolution scheme to reduce pending tax disputes and litigations that stand at over Rs 5.5 lakh crore.
According to government estimates, there are 300,000 pending cases with the first appellate authority. "In order to reduce this number, a new Dispute Resolution Scheme is launched," Jaitley said.
According to the scheme, a taxpayer who has an appeal pending before the commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment.
No penalty will be levied for income tax cases with disputed tax up to Rs 10 lakh. Cases with disputed tax exceeding Rs 10 lakh will be subjected to only 25 per cent of the minimum imposable penalty for both direct and indirect taxes.
Any pending appeal against a penalty order can also be settled by paying 25 per cent of the minimum of the imposable penalty.
However, people charged with criminal offences under specific Acts will not be allowed to avail of the scheme.