2 February 2017
Budget
Expert Speak
Union Budget 2017-18
We hosted a conference call with Mr Girish Vanvari, Partner and Head of Tax at KPMG India,
to decode his views on the Union Budget 2017-18. According to Mr Vanvari, the budget
broadly focused on the social and rural sections of the economy. While there were no
significant changes in direct and indirect taxation, the budget did propose tax incentives for
MSME and emphasized on promoting digitalization. With regard to capital markets, the FM in
his budget clarified that there will be no indirect taxation for FPI under Cat I & II , as well as
no change in tenure for claiming LTCG benefits on transfer of equity shares and units of
equity-oriented funds. However, certain restrictions have been imposed on claiming the LTCG
benefits on transfer of equity shares and units of equity-oriented funds which were acquired
without payment of Securities Transaction Tax (STT) post October 1, 2004.
Mr Girish Vanvari —
Partner & Head of Tax,
KPMG India
Mr Girish Vanvari is a Partner
with KPMG in India and heads
the Tax Consulting practice of
the firm. He has been
instrumental in setting up the
Mergers & Acquisitions
(M&A) tax business of the
firm, followed by the Global
International Corporate Tax
practice.
Key Budget Highlights:
Capital markets
Roadmap for the abolition of FIPB (after 26 years) will be charted, and the
government is likely to further liberalize sectors like NBFC, defense and retail,
which are FDI-restricted.
Foreign portfolio investors (category I and II only) are exempt from indirect tax
Over the years, he has
provision, i.e. tax on transactions involving transfer of shares or interest in a
advised many companies
foreign entity which derives its value substantially from Indian assets. The said
across sectors such as
manufacturing, infrastructure,
amendment will be applicable retrospectively from April 1, 2012.
telecom, IT, energy and
Holding period of equity instruments to claim benefits of long-term capital gains
natural resources, financial
(LTCG) has been kept at one year.
services, auto, pharmaceutical
and FMCG on many large
To impose anti-abuse measures in long-term capital gain tax u/s 10(38) exemption
M&A deals and restructuring
(i.e. income arising from transfer of long-term capital asset, being equity share of a
transactions in India. Further,
company or a unit of an equity oriented fund), it is proposed to amend section
he has helped multinational
companies navigate the tax
10(38) to provide that exemption under this section for income arising on transfer
and regulatory framework in
of equity share acquired or on after 1st day of October, 2004 shall be available only
India.
if the acquisition of shares is chargeable to Securities Transaction Tax (STT).
However, to protect the exemption for genuine cases, it is also proposed to notify
transfers for which the condition of chargeability to STT on acquisition shall not be applicable.
Conversion of preference shares to equity shares of a company is proposed to be exempted.
Corporate taxation
MAT:
Carry forward of MAT credit entitlement is proposed to be extended to 15 years, as against 10 years
currently. Furthermore, for companies complying with Ind-AS, suitable changes are proposed with respect to
computing book profits in determining MAT liability. This will bring them in parity with those companies that
are yet to adopt Ind-AS provisions.
Thin capitalization norms:
Interest expenses claimed as deduction by an entity to its associated enterprises are
proposed to be restricted to 30% of its EBITDA, or interest paid/payable to associated enterprise, whichever is
less. This can have significant impact on capital-intensive sectors such as real estate and infrastructure, where
we see huge overseas debt. This could mean that tax cost for such companies can go up.
Sandeep Gu
pta
(S.Gupta@MotilalOswal.com); +91 22 3982 5544
Somil Shah
(Somil.Shah@MotilalOswal.com); +9122 3312 4975/ Mehul Parikh (Mehul.Parikh@MotilalOswal.com); +9122 3010 2492
Investors are advised to refer through important disclosures made at the last page of the Research Report
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
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 Motilal Oswal Financial Services
Expert Speak
Digital push:
Reduction in allowable cash expenditure (incl. capital expenditure) to INR10,000 from the current INR20,000.
Penalty equal to the amount received in cash in excess of INR0.3m or more in aggregate from a person in a
day or single transaction or transactions relating to an event/occasion.
Presumptive taxation rate on digital receipts reduced to 6% from the erstwhile 8%.
MSME tax boost:
Tax rates for smaller companies, whose turnover does not exceed INR50m, are proposed to be
reduced to 25%.
Real Estate:
The time limit for completing the project in order to claim deduction for eligible developers under
Section 80-IBA is raised to five years from three years earlier.
Personal taxation
Tax rates:
Two amendments have been made for tax rates on personal income:
For the slab of INR0.25-0.5m, tax rates have been reduced to 5% (from 10% currently). This will result in a
uniform benefit of up to INR12,500 for all individuals.
Surcharge on income tax of individuals, HUFs, association of person whose income is between INR5m and
INR10m has been proposed at 10%.
Tax on dividend:
Last year’s budget levied 10% additional tax on dividend received by resident individuals, HUFs
and firms, where the annual dividend received is in excess of INR1m. In the current budget, the scope of this
section is increased to include trusts (mainly family trusts).
Real Estate:
Holding period for immovable property to be considered for providing benefits under long-term capital gains
tax is proposed to be reduced to 24 months from 36 months currently.
Base year for computation of cost for long-term capital gain changed to 2001 (currently 1981), which will
result in reduction of capital gain tax.
Under the existing provisions, loss from house property is allowed to be set off against any other income
(without any limit). It is now proposed to limit such set off to INR0.2m. Any unabsorbed loss from house
property can be carried forward to set off against income from house property up to eight years.
Indirect taxation
GST is likely to be rolled out from July 1, 2017. Thus, there are not too many changes in indirect taxes in the
current budget.
2 February 2017
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 Motilal Oswal Financial Services
Expert Speak
NOTES
2 February 2017
3
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