The Finance Bill 2013 proposes to tax an otherwise mechanism available to global investors for repatriation of profits without paying tax in India. It has been proposed to levy an ‘additional income-tax’ on distribution of income by the way of buy-back of shares by unlisted companies. The company implementing the buyback scheme shall be liable to pay the taxes at the rate of 20 per cent on the difference between consideration received by the shareholder on buy-back as reduced by the amount received by the company for issue of such shares. The proposal may require to be re-looked considering anomalies arising on account of, e.g. claiming of tax credit in the home jurisdiction, where the shares have been acquired by the investor rather than subscribed through an issue by the company.

Push for manufacturing sector

In lines of the expectation of manufacturing sector, Finance Minister in the Finance Bill 2013 has proposed an investment allowance @ 15 per cent of the actual cost of new plant and machinery, exceeding Rs 100 crore acquired and installed during the period beginning from April 1, 2013 and ending on March 31, 2015. Such allowance would be available in addition to the depreciation claim made by the taxpayer. Further, it is also proposed to provide suitable safeguards so as to restrict the transfer of plant and machinery for a period of 5 years except in case of amalgamation or demerger but the restriction shall continue to apply to amalgamated company or resulting company respectively.

Indirect transfers: Missing element in Budget

Global investor community was quite worried with the amendments that were brought out in the last year’s Budget regarding anti-avoidance (GAAR) and the retrospective amendment regarding the taxability of indirect transfer of interest in Indian companies. In line with the recommendations made by the Shome committee on GAAR provisions major amendments have been proposed in the present Budget itself. Having said that, for the moment there has been no amendment proposed to reduce the rigor regarding taxability of indirect transfer of interest in Indian companies and related matters thereto.

Surcharge on high-income earners

Amid much speculation whether provisions to tax the high income earners would be brought in this Budget, the Finance Minister has proposed an additional surcharge of 10 per cent on those individual taxpayers having taxable income greater than Rs 1 crore. However, the Budget has not made any changes in the basic slab rates and tax rates for individuals. Further, it is also proposed to increase surcharge from 5 to 10 per cent and 2 to 5 per cent in case of domestic and foreign companies respectively whose taxable income exceeds Rs 10 crore.

Published on March 17, 2013