SMEs to pay 25% tax even if Rs 50-crore limit crossed in FY17: CBDT

Yardstick after FY18 to be decided by Finance Bills of those years

While companies that had up to Rs 50 crore of turnover in 2015-16 will be taxed at the reduced rate of 25% in 2017-18, even if they crossed the threshold in subsequent years, the yardstick for reduced corporation tax rate after FY18 will be decided by the Finance Bills of those years.

“If Finance Bills after 2017 retain this provision, the reduced rate of 25% will continue for companies with turnover of up to Rs 50 crore in 2015-16. If amended, the changed rules will apply,” Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra told this newspaper.

He said no clarifications will be issued on the yardstick of reduced rate after 2017-18. For the 2017-18 financial year, which is the 2018-19 tax assessment year, the threshold of Rs 50,000 crore of turnover for 2015-16 had been frozen, he said.

However, clarity is still needed as to what will happen to companies set up in 2016-17 or 2017-18. “If your turnover in 2015-16 was Rs 50 crore, then you will be subject to 25% tax. We will come out with a clarification on (applicability of the tax benefit to) new companies,” Chandra was quoted by PTI as saying on the sidelines of the post-Budget interaction with members of the Confederation of Indian Industry.

From the data of 2015-16, there were 694,000 companies filing returns, of which 667,000 had turnover of less than Rs 50 crore. As such, 96% of companies will get this benefit of lower taxation. “This (decision) will make our MSME (medium, small and micro enterprises) sector more competitive, compared to large companies. The revenue foregone estimate for this measure is expected to be Rs 7,200 crore per annum,” Finance Minister Arun Jaitley had said earlier.

Chandra said his department would issue an “exhaustive list” of transactions on which the “anti-abuse” provision of the Budget to levy 10% long-term capital gains (LTCG) tax on share transfer in unlisted companies will not be applicable, post 2004. The provision has been proposed in the Budget to plug bogus LTCG, being availed of by investment in penny stocks and to put an end to “sham transactions”.

“We are taking information from all stakeholders and we will give a very exhaustive list as to where Section 10(38) will not be applicable. It is absolutely an anti-abuse law we have brought in and it will be used where the law is abused,” he said. The Budget had proposed this tax on those who acquired shares in unlisted companies after October 1, 2004, if they had not paid securities transaction tax at the time of purchase. Chandra said genuine investors in an initial public offer of equity or those having come in through foreign direct investment need not worry, as there will be no change in policy with regard to capital gains. “We will come out with a clarification as to what kind of share transactions will be put (under this provision) so that there is no harassment,” he said.

The tax department says the route of LTCG in unlisted shares was being misused in the past two-three years. It estimates ‘bogus’ gains availed of by ‘khoka’ (shell) companies last year were Rs 80,000 crore.

With business still having queries on the General Anti-Avoidance Agreement Rule (GAAR) clarifications of last month, Chandra said his department would give more explanations. Business is asking if some examples and cases could be elaborated on, to avoid subjectivity in introduction of GAAR from April 1. Chandra said, “We will consider giving examples in the GAAR clarifications.”

Catching the dodgers

The income tax department has found someone running an educational institution had put Rs 2 lakh in accounts of each of his employee after demonetisation.

When one of the employees complained and the department did a search, he surrendered around Rs 10 crore, Central Board of Direct Taxes Chairman Sushil Chandra said. He added that action is required against all persons who misused the window given to people to deposit their holdings of old Rs 500 and Rs 1,000 notes.

He said no questions would be asked about deposits of up to RS 2.5 lakh and only those accounts will be probed that do not match the tax returns. Using ‘big data analytics’, the department has segregated different types of deposits and large ones, such as more than Rs 1 crore, that do not match with the returns filed in previous years will be taken for “layer enforcement”.

“There is no need to fear for any genuine person. We will ensure there is no harassment to a genuine person,” said Chandra.