The Union
Budget 2017, which was placed before the Parliament on Wednesday, was structured around 10 broad themes expected to drive consumption and growth. Promoting digital economy, moving India towards a cashless economy, ease of investment and doing business, empowerment of farmers, rural population, poor and the youth, good governance and creation of infrastructure, seemed to be the driving force behind the Budget 2017 proposals. Keeping in line with these themes, various key policy and tax measures have been announced, which touch the Indian tech and e-commerce sector:
The corporate tax rate for companies with less than INR 50 crores of turnover has been reduced to 25 percent, as opposed to the current rate of 30 percent. This would help small and medium enterprises as well as companies in the start-up space.
Speaking of start-ups, the Government has had specific focus on the Start Up India initiative. Budget 2016 had introduced income tax holiday for start-ups for a period of 3 consecutive years out of the initial 5 years. This tax holiday period has now been relaxed and can be claimed for a period of 3 years out of the initial 7 years. This is a big positive for the start-ups as it allows them more flexibility to claim the tax holiday. Further, there is also a relaxation (for eligible start-ups) of the erstwhile restrictive conditions which disallowed set off of carried forward loss in case of change in shareholding of more than 51 percent.
On the SEZ tax incentive front, a recent favourable ruling of the Hon’ble Supreme Court has been overturned by way of a prospective amendment, which could negatively impact tech companies claiming the holiday for multiple undertakings. The Supreme Court, in the context of Section 10A, had held that the deduction under Section10A is attached to the eligible undertaking and is to be computed on a standalone basis, without reference to other eligible or non-eligible undertakings of the taxpayer.
The Supreme Court had also held that the deduction is to be availed of at the stage of computing the income of the eligible undertaking and not at the stage of computation of the total income of the taxpayer.
The law has now been amended to provide that deduction under Section 10AA shall be allowed from the total taxable income of the assesse (and not the undertaking) and consequently, the said deduction shall not exceed the total income.
Extension of MAT credit carry forward period from 10 years to 15 years is a big relief considering that the extension would enable entities claiming tax holiday to better utilise their MAT credit. The quantum of MAT credit which can be carried forward has also been tweaked to ensure that no double benefit is obtained on account of foreign tax credit already claimed.
MAT provisions have been revamped to align them with IND-AS provisions and has provided a directionary road-map on taxability on first time adoption as well as ongoing reporting under IND-AS.
A reduced withholding tax rate on fees for professional or technical services received by call centre businesses to 2 percent as against earlier rate of 10 percent would mean cash flow relief for companies in the call centre business in India.
In order to promote non-cash transactions in the small and unorganised sector, the government has lowered the presumptive income rate from 8 percent to 6 percent of turnover received otherwise than by cash. This presumptive taxation is applicable to non-corporate assesses with turnover of less than INR 2 crore.
The clarification that the beneficial interest tax rate of 5 percent is now applicable on rupee-denominated masala bonds will also help the e-commerce and the technology sector to avail more funds via the debt route. Further, any capital gains on masala bonds due to appreciation of rupee has also been exempted.
While there are no significant changes in the transfer pricing regime, the applicability of domestic TP regulations have been relaxed to exclude transactions between two related parties unless profit linked deductions are availed by either of the entity. Further, a new section has been introduced to provide for secondary adjustments in the hands of the taxpayer where as a result of primary adjustment, there is an increase in the total income or reduction in the loss, the excess money which is available with its Associated Enterprise.
If such excess money is not repatriated to India within the prescribed time limit, the same shall be deemed to be an advance made by the taxpayer to the AE and interest shall be computed as income of the assesse.
On the indirect tax front, the FM has neither proposed any substantial changes nor addressed any specific budget expectations of the industry. However, to encourage Digital India and Cashless Economy initiatives, Customs and Excise duty exemptions/ benefits have been extended to various specified products such Point of Sale Devices, POS card readers, finger print reader / scanner, IRIS scanner, specific micro ATMs etc and related inputs used in its manufacture.
Separately, R&D Cess Act 1986 has been repealed from 1 April 2017. The Act levied a cess on all payments made for import of technology for the purposes of encouraging the commercial application of indigenously developed technology.
On GST front, FM has assured substantial progress on various aspects ie finalisation of GST draft law, IT systems to enable to GST compliances. Further, it has been mentioned that extensive reach out efforts for creating awareness would be made by the Government to trade and industry from 1 April 2017.
The Union Budget 2017 announcements reinforce the Indian Government’s commitment towards promotion of “Digital India”. The bunch of reforms introduced for moving India towards a cash less economy is expected to provide a boost to the Indian e-commerce and technology space. Technology enabled schemes to empower youth and promote education through Swayam Yojna, launch and promotion of BHIM and other Aadhar based payment apps are all expected to propel India towards a more digitised economy, thus aiding the growth of the Indian technology and e-commerce space.
Sourec: moneycontrol.com