Moving away from the tradition of carrying a suitcase and reciting parables, Finance Minister Nirmala Sitharaman has attempted to chart a new course. Being the first Budget of the government after its return to power, it was encouraging to see that it has made a proactive effort to provide relief to India Inc. by rationalising various provisions of the income-tax law.

The Budget was presented against the backdrop of challenges to the economy. Having missed its direct tax collection target in the previous fiscal year, with negative economic indicators of slowing automobile sales and high unemployment, meant that the government had its task cut out in the Budget.

To spur the SME sector, the Budget proposes to extend the benefit of a reduced corporate tax rate of 25 per cent to domestic companies with an annual turnover up to ₹400 crore in FY 2017-18 (hiked from ₹250 crore). This is likely to benefit 99.3 per cent of domestic companies.

Further, 100 per cent investment-linked deduction has been announced for mega manufacturing plants in the sunrise and advanced technology industries, although corresponding changes in the Finance Bill are yet to be made.

Start-ups have come into the limelight. The Finance Minister has committed to put to rest the angel tax-related controversy regarding valuation of shares, subject to mandatory declarations and information from investors and investees in their tax returns. Special administrative arrangements will be made by the Central Board of Direct Taxes for the pending assessments of start-ups and to redress their grievances.

Also, the conditions for set-off of losses of eligible start-ups have been liberalised. And it is proposed that the sunset clause for investment in start-ups from the proceeds of sale of residential property should be extended until March 31, 2021, with rationaliation of conditions.

Continuing with its intent to embrace technology, the Finance Bill has proposed online applications for non-residents to enable them to obtain lower or nil withholding tax certificates for payments.

Further, the manner in which a tax officer will determine the appropriate portion of the sum chargeable to tax in the hands of a non-resident will be separately notified.

A scheme of faceless assessments in the e-mode, involving no human interface, will be launched this year in a phased manner. A central cell will be the single point of contact between the taxpayer and the tax department and cases will be randomly allocated for scrutiny without disclosure of details pertaining to the tax officer. While this is a welcome move, corporates with large and complex tax returns may be wary of ‘high pitched’ assessments for want of an in-person hearing. As an anti-abuse measure, it is proposed that buyback tax of 20 per cent should be extended to listed companies. Consequently, receipt of buyback will be exempt from tax in the hands of shareholders.

To discourage use of cash, with effect from November 1, 2019, the government will put in place an electronic system for accepting payments from persons conducting business (with a total turnover exceeding ₹50 crore in the immediately preceding previous year). Failing to do this will attract a hefty penalty of ₹5,000 per day. The Banking Cash Transaction tax will be re-introduced with effect from September 1, 2019, in a new avatar by providing that TDS at the rate of 2 per cent will be levied by a bank on cash withdrawals exceeding ₹1 crore per annum from a bank account.

Currently, non-deduction of TDS on payments to non-residents results in disallowance of expense. Additionally, the payer is treated as an assessee-in-default. It is now proposed that the payer will not be liable to any disallowance or default as long as the non-resident recipient has filed a tax return and discharged the tax.

Therefore, this initiative is now aligned with provisions relating to payments to residents. This is a positive move and will prevent potential double taxation of the same transaction.

In sum, the Budget is big on vision and ambition and has a clear objective to re-ignite growth.

The writers are Partner and Director, respectively, Corporate and International Tax, PwC India

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