Union Budget Tax Proposals impacting Financial Service Sector

Transcription

1 Union Budget Tax Proposals impacting Financial Service Sector 4 March 2016

2 Rationalization of TDS provisions for AIFs Differentiation between the tax treatment for AIFs and VCFs continue Rationalization of TDS provisions in case of Cat I and II AIF - Investment Fund to withhold tax at the rates in force where unit holder is a nonresident - Investment Fund to withhold 10% where unit holder is a resident - Unit holders eligible to obtain nil withholding or lower withholding certificate Issues No specific exemption for withholding by AIF in case exempt income distributed by an AIF to resident unit holders viz. dividend AIF permitted to invest in a LLP - Taxability in case of share of profit from an LLP? No specific tax treatment for AIF CAT III Exemption from consideration as deemed income under section 56 on issue of shares at premium to VCF to be accorded in case of issue of shares to AIF as well Clarification on characterization of income of AIF as capital gains required

3 Rationalization in case of REITs / InVITs Exemption from levy of DDT in respect of distribution made by SPV to REIT / InVIT - subject to : REITs / InVITs to hold 100% share capital of the investee company or the requisite capital as per the directions of government Exemption available only to the extent of distribution made out of income earned by investee company post acquisition of shares by REITs / InVITs - Interest and dividend income from investee company exempt for REITs / InVITs - Dividend income also exempt in hands of investors REITs still to remain unattractive - other reforms required - viz. - Pass through of capital gains in case of overseas investor Exemption from stamp duty on transfer of assets Non applicability of provisions of 50C / 43CA in case of transfer of asset to the trust at nominal value

4 Other substantive amendments Relaxation for off shore funds under Section 9A of the IT Act: - Fund set up in government notified country will also be covered the current provisions cover only countries with which India has entered into a DTAA - Condition of not having control and management of any business or not carrying on any business by fund to be applicable only to the activities in India and not from India - Safe harbour rules required to be made more attractive Deferral of POEM provision by 1 year i.e. effective from 1 April Transition provisions for issues pertaining to computation of income, treatment of unabsorbed depreciation, set-off of losses for a foreign company which has not been previously assessed in India proposed Clarification on non-applicability of MAT provisions to foreign company Exemption from capital gain tax to non resident, on account of appreciation of rupee against foreign currency upon redemption of rupee denominated bond Relaxation in requirement of furnishing PAN by non-residents to provide alternative document, rules expected to be notified Reduction in the period of holding for characterisation as long term capital asset to two years in case of unlisted companies mentioned in the Budget speech no specific amendment in the Finance Bill

5 Other substantive amendments Clarifications of provisions related to buyback tax: - Buyback tax to apply even where buyback by a company is carried out under any law - Rules for determination of amount received by company for issue of shares for the purpose of calculation of distributed income, to be notified Clarification on permissibility of the beneficial 10% rate for long term capital gain on transfer of shares of a closely held company, in case of non-resident investor Issue of whether shares of a private company would qualify for a beneficial 10% rate now addressed Additional condition for a tax neutral conversion of company into LLP value of assets in books of accounts of company in any of three preceding FY not to exceed INR 5crores Exemption from capital gain tax on transfer of any units in merger or consolidation of plans of mutual fund scheme Levy of 10% tax on dividend income earned by resident shareholder (individual, HUF and firm) in excess of dividend income of Rs. 10,00,00 - Not applicable in case of dividend received from Mutual funds, AIFs, RIETS, InVITs

6 Other substantive amendments Complete pass through status accorded to Securitization Trust Deduction to NBFCs for provision for bad and doubtful debts to the extent of 5% of total income Incentives for eligible Start-ups - 100% of deduction of profits for 3 out of 5 years - Exemption from capital gain if gains invested in funds recognised by government for start-ups or shares of a company which qualifies small or medium enterprise under MSME Act, Cannot be formed by splitting up and reconstruction of an existing business - Only company covered - start up policy proposed to include even an LLP and a registered firm Deduction in respect of profits from housing projects - Deduction of 100% profits from business of developing and building housing projects - Project to be approved by competent authority after the 1st day of June, 2016, but on or before the 31st day of March, Project to be completed within 3 years from the date of approval of project and comply with prescribed conditions

7 ... Other substantive amendments Tax incentives to International Financial Service Centre ( IFSC ): - Exemption from levy of DDT to companies located in IFSC - 9% to companies located in IFSC - Exemption from levy of STT on sale of equity shares / units of equity oriented funds / units of business trust in foreign currency, from recognised stock exchange situated in IFSC - Exemption from long term capital gain on transfer of such assets - Exemption from levy of Commodity Transaction Tax on sale of commodity derivatives in foreign currency from recognised stock exchange in IFSC

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