Co-ops to pay Minimum Alternative Tax and Surcharge at reduced rates of 15% and 7%

Incentives to start-ups

Stating that start-ups have emerged as drivers of growth for the economy, the finance minister has proposed to extend the period for incorporation of the eligible start-up by one more year, ie, up to 31 March 2023, in order to provide them tax incentive for three consecutive years out of ten years from incorporation to mitigate the effects of Covid-19 pandemic. This incentive was earlier available to eligible start-ups established before 31 March 2022.

Incentives to Newly Incorporated Manufacturing Entities

Sitharaman said that to establish a globally competitive business environment, a concessional tax regime of 15 per cent tax was introduced by the government for certain newly incorporated domestic manufacturing companies. The overnment proposes to extend the last date for commencement of manufacturing or production under section 115BAB by one year to 31 March 2024 from 31 March 2023.

Incentives to IFSC

The minister said that to promote the IFSC, the government proposes to provide that income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions.

Rationalisation of TDS Provisions

Noting that as a business promotion strategy, there is a tendency for businesses to pass on benefits to their agents, which are taxable in the hands of the agents, Sitharaman said that in order to track such transactions, the government proposes to provide for tax deduction by the person giving benefits, if the aggregate value of such benefits exceeds Rs20,000 during the financial year.

Rationalisation of Surcharge

Sitharaman pointed out that several works contracts terms and conditions require formation of a consortium mandatorily whose members are generally companies. She said in such cases, the income of these AOPs has to suffer a graded surcharge up to 37 per cent, which is a lot more than the surcharge on the individual companies. Therefore, she proposed to cap the surcharge of these AOP’s at 15 per cent. Further, she highlighted that the long-term capital gains on listed equity shares, units among others are liable to maximum surcharge of 15 per cent, while the other long term capital gains are subjected to a graded surcharge which goes up to 37 per cent. The government proposes to cap the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent. The minister added that this proposal would “give a boost to the start-up community and along with the proposal on extending tax benefits to manufacturing companies and start-ups reaffirms the government’s commitment to Atmanirbhar Bharat”.

Clarification on Health & Education Cess

Stating that the ‘Health and Education Cess’ is imposed as an additional surcharge on the taxpayer for funding specific government welfare programmes, the minister, to reiterate the legislative intent, proposed to clarify that any surcharge or cess on income and profits is not allowable as business expenditure. She said that income tax also includes surcharge and observed that it is “not an allowable expenditure for computation of business income”.

Deterrence Against Tax Evasion

Sitharaman announced that the government proposes to provide that no se off, of any loss shall be allowed against undisclosed income detected during search and survey operations. She pointed out that in many cases, it has been observed that where undisclosed income or suppression of sales among others is detected, payment of tax is avoided by setting off losses. This proposal would bring certainty and would increase deterrence among tax evaders, the minister stated.