In order to give a boost to the banking sector, Union Minister for Finance and Corporate Affairs Arun Jaitley proposed to increase allowable provision for non-performing asset (NPA) from 7.5% to 8.5%. This will reduce the tax liability of banks. He also proposed to tax interest receivable on actual receipt instead of accrual basis in respect of NPA accounts of all nonscheduled cooperative banks also at par with scheduled banks. This will remove hardship of having to pay tax even when interest income is not realised.
Jaitley also said that the income tax for smaller companies with an annual turnover up to Rs 50 crore is reduced to 25 per cent in order to make MSME firms more viable and also to encourage more firms to migrate to the company format. According to data from the Assessment Year 2015-16, there are 6.94 lakh companies that file returns, of which 6.67 lakh companies fall under the MSME category and, therefore, percentage-wise 96 per cent of companies will benefit from lower taxation. The revenue forgone estimate for this measure is expected to be Rs. 7,200 crore per annum.
Jaitley reiterated that it is not practical to remove or reduce MAT at present. However, in order to allow companies to use MAT credit in future years, he proposed to allow the carry forward of MAT up to a period of 15 years instead of 10 years at present. Minimum Alternate Tax is at present levied as an advance tax. Although the plan for the phase out of exemptions will kick in from April 1, the full benefit of revenue will be available only after 7 to 10 years, when all those availing the exemptions would have completed their tenure of reaping benefits.
The government announced several measures for stimulating growth in the Budget proposals for 2017-18. A concessional withholding rate of 5 per cent is being charged on interest earned by foreign entities in external commercial borrowings or in bonds and government securities. This concession is available till June this year and benefits will accrue to rupee denominated bonds popularly called the masala bonds.
The government gave income tax exemptions to start-ups with certain conditions last year. For the purpose of the carry forward of losses in respect of such start-ups, the condition of continuous holding of 51 per cent of voting rights has been relaxed subject to the condition that the holding of the original promoter/promoters continues. Also, the profit-linked deduction available to the start-ups for 3 years out of 5 years is being changed to 3 years out of 7 years.
Considering the wide range of use of LNG as fuel as well as feed stock for petrochemicals sector, the Finance Minister proposed to reduce the basic customs duty on LNG from 5 per cent to 2.5 per cent.
In order to incentivise domestic value addition and to promote 'Make in India' program, he proposed to make changes in customs and central excise duty with respect to certain items. Some of these proposals will also address the issue of duty inversion.
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