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India: Budget 2017–18 — corporate taxation

On 1 February 2017, the Finance Minister presented the budget for 2017–18. The main details of the measures regarding corporate taxation are summarized below.

Tax rate

The corporate tax rate is reduced to 25% for enterprises with annual turnover up to INR500 million.

Business income

  • A presumptive tax is imposed on businesses having turnover of less than INR20 million, with the exception of those in the business of plying, hiring and leasing goods (section 44AD of the Income Tax Act, 1967 (ITA)). If the turnover is received in full through a bank account, a presumptive tax rate of 6% will apply. However, if the turnover is received through any other means, the presumptive tax rate will be set at 8% of the total turnover
  • The disallowance for cash expenses exceeding the INR20,000 threshold applicable to a person on a per-day basis is reduced to INR10,000
  • A new section will be introduced to restrict interest deduction up to 30% of earnings before interest, tax, depreciation and amortization (EBITDA) if the amount of interest paid to nonresident associated enterprises (AEs) exceeds INR10 million. Banks and insurance companies will be excluded from this ambit

Capital gains

  • The holding period for categorizing immovable property as long-term capital assets is reduced from three to two years
  • Foreign portfolio investors (categories 1 and 2) will be exempt from tax under provisions relating to the indirect transfer of capital assets
  • The base year for calculating capital gains will be changed from 1981 to 2001

Deductions and credits

  • Income from the transfer of carbon credit will be taxed at 10% on the gross consideration
  • Cash donations to political parties and charitable organizations will be restricted to INR2,000
  • The carry-forward of minimum alternate tax credit will be extended from 10 to 15 years
  • Loss carry-forward subject to 51% shareholding restriction (under section 79 of the ITA) for eligible start-up companies will be relaxed.

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