Budget 2015: Big print promises, small print chips away - Times of India

NEW DELHI: The applause for the finance minister had barely died down when it became apparent that the reduction in corporate tax from 30% to 25%, over the next four years, will actually have companies shelling out more — not less — next year because of the rise in surcharge. The phased reduction in corporate tax rates will kick in only from April 1, 2016.

The surcharge for large corporate tax payers having more than Rs 10 crore as taxable income stands increased from 10% to 12%, resulting in an effective tax rate of 34.60% (33.99% currently). Mid-tier companies with taxable income between Rs 1 crore and Rs 10 crore will cough up a surcharge of 7% (5% earlier), raising corporate tax rate from 32.45% to 33.06%. As in earlier years, there is no surcharge imposed on companies with taxable income of less than Rs 1 crore.

"The reduction of corporate tax rate from the basic of 30% to 25% over four years is welcome. But it will be interesting to understand how the exemption will be phased out. Only then one will be able to assess the impact on India Inc, especially as existing exemptions are to be withdrawn," says Girish Vanvari, national tax head, KPMG.

The hike in surcharge will also impact Minimum Alternate Tax with the rate for large companies rising to 21.34% from the current 20.96%. Surcharge hike is also bad news for shareholders, as there is a rise in dividend distribution tax (DDT), which means reduced cash for dividend payouts.

The good news is investments into India will get a boost, owing to the clarifications on indirect transfer of a capital asset situated in India. "Tax on indirect transfer cases will apply only where the value of Indian assets is 50% or more of the total assets in the overseas company. Even if this threshold is exceeded, only the proportionate amount of capital gains would be taxable in India and not the entire capital gain. Exempting minority shareholders holding less than 5% stake is commendable and will ensure that transactions in overseas listed companies (which have an underlying subsidiary in India) are not routinely subject to this tax," explains Pranav Sayta, partner, EY.

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