Expectations from Union Budget 2016 (1)

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Expectations from Union Budget 2016
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• The countdown for the Budget 2016 has begun. From
  average taxpayer to tax experts, all eyes are
  transfixed on the Union Budget 2016. Every year
  'Taxmann' comes out with its expectations from
  the Union Budget. In our expectations for the
  Union Budget 2014 and 2015, we predicted as well
  as suggested certain changes consisting of
  substantive and procedural changes which were
  published in 2014 47 taxmann.com 120 (Article),
  2015 54 taxmann.com 416 (Article) and 2015 32
  CPT 253 (Article). It is to our credit that many
  of our predictions came true in the Union Budget.
• This time also we have recommended
  substantive/procedural changes and various other
  matters which CBDT should clarify to end the
  controversy and to bring about certainty in the
  Income-tax laws.
• Our expectations from the Union Budget, 2016
• Union Budget likely to reduce corporate tax rate
  with rationalization of exemptions
• On February 28, 2015 the Hon'ble Finance
  Minister, Mr. Arun Jaitley had proposed to reduce
  the corporate tax rate from 30 to 25 in his
  Budget Speech.

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II. Tax incentives for start-ups The Government
of India has announced 'Start-up India'
initiative for creating a conducive environment
for start-ups. So, it is very likely that big
announcements would be made in upcoming Budget
2016 to promote start-ups in India. III.
Disallowance under Section 14A should be
reconsidered a) Dividend income and share in
profit of firm should not be treated as exempt
income for Section 14A disallowance as these
incomes always suffer economic taxation. b)
Section 14A disallowance should not exceed amount
of total expenditure claimed under any provision
of the Act. IV. Amendments needed in MAT
provisions Corporate India gleefully greeted the
Budget 2015 when the Finance Minister announced
the scaling down of corporate tax rate in the
next 4 years to finally halt at 25 percent. In
the backdrop of slowdown of economies across the
globe, corporate India might be tempted to seek
some tax benefits to spur growth in India by way
of amendments to certain tax provisions, besides
reduction in tax rates in the ensuring budget.


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V. Applicability of Section 206AA if tax rate
under treaty is more beneficial As per section
206AA where the deductee does not furnish the
PAN, tax shall be deducted at source at higher of
the following rates a) rate specified in the
relevant provision of this Act or b) rate or
rates in force or c) 20. VI. Transfer Pricing
and Marketing intangibles Marketing intangibles
have been one of the most contentious issues in
Indian Transfer pricing litigation history. With
a number of game changing and landmark rulings
rolled out in 2015, a level playing field has
been created in the matter. However, there is
still room for more clarity to be provided as the
matter travels to The Supreme Court, for the
multinationals to take steps to mitigate onerous
litigation and tax exposure in the matter. VII.
DTAA benefit should be allowed on basis of
self-declaration instead of TRC Non-residents in
India intending to avail benefit under the DTAA
between India and any other country need to
produce a certificate of his being resident,
i.e., Tax Residency Certificate ('TRC') from the
tax authorities of the country of which he is a
resident.
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VIII. Interest on refund arising on excess
payment of self-assessment tax Section 244A of
the Act, deals with the grant of interest on
refund of any amount of tax, which becomes due to
the assessee in terms of the provisions of the
Act. The section was inserted in the statute as a
measure of rationalization, to ensure that the
assessee was duly compensated by the Government
by way of payment of interest for monies
legitimately belonging to him and wrongfully
retained by the Government without any gaps. IX.
Clarity needed on taxability of Joint Development
Agreements For development of real estate,
concept of joint development arrangement has
emerged as a popular model wherein land owner and
developer combine their resources and efforts.
Under a typical joint development agreement, land
owner contributes his land and enters into an
arrangement with the developer to develop and
construct a real estate project at the
developer's cost. Thus, land is contributed by
the land owner and the cost of development and
construction is incurred by the developer.
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• X. Taxability of secondment arrangements
• Under a typical secondment arrangement, the
  seconded employees/assignees are transferred to
  the host country entity (the Indian entity) to
  work on special assignments, which are generally
  technical or managerial in nature. For the period
  under secondment, the secondees work under the
  direction, control and supervision of the Indian
  entity. Through the seconded employees the
  investors are able to efficiently nourish their
  investments in India. However, there are no clear
  cut guidelines to determine taxability in
  secondment arrangements. Thus, the secondment
  agreements have led to legal wrangle's between
  revenue and foreign entities.
• XI. Threshold limit and rate of TDS should be
  rationalized
• It is recommended thatthe age-old threshold
  limits of TDS should be increased to avoid the
  situation of first collection of taxes and its
  subsequent refund. Further, TDS rates should also
  be rationalized keeping in view the restructuring
  of the Income-tax rates over the past decade.
• XII. Deposit in Capital Gain Scheme should not
  exceed the due date for filing of return
• The provisions of section 54(2) stipulate that
  the amount of the capital gain which is not
  utilised by the assessee towards the purchase or
  construction of the new house before the date of
  furnishing the return of income under section
  139, shall be deposited by him in capital gain
  account scheme. Section 54F(4) also provides
  exemption on similar lines.

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• XIII. TDS and Sale of SIM cards/recharge coupons
• Telecommunication service providers are now
  facing new problems with regard to their
  obligation to deduct tax at source in respect of
  sale of SIM cards and recharge coupons at
  discounted price to distributors. Assessing
  Officers are treating the difference between
  actual price and discounted price of SIM
  card/recharge coupon as commission given to
  distributors, and accordingly, sending notice,
  treating the service providers as
  assessee's-in-default for not deducting tax at
  source under section 194H.
• XIV. Sales consideration as per Sec. 50C is not
  relevant to compute exemption under Section
  54F/54
• Section 50C of the Income-tax Act was introduced
  with effect from April 1, 2003 by the Finance
  Act, 2002. Section 50C was introduced to make a
  special provision for determining the full value
  of consideration in cases of transfer of
  immovable property.
• XV. Characterization of surplus arising from sale
  of shares
• Shares and other securities can be held either as
  capital asset or stock-in-trade or both. However,
  the Income-tax Act does not contain any specific
  guidelines as to the characterization of any
  particular investment as capital asset or
  stock-in-trade. While this characterization is
  essentially a fact-specific determination, the
  absence of legislative guidance in this regard
  has resulted in a lot of uncertainty and
  avoidable litigation.

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