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Home >Opinion >Online Views >Budget 2015 reflects a noble intent

Bold and refreshing, the Union budget has materially delivered on investor expectations on key tax aspects—bringing a much-needed benign trend for corporate tax to 25% over four years, re-affirmation of the Goods and Services Tax for the coming financial year, and deferral of general anti-avoidance rule.

The abolition of the ineffective wealth tax and the final burial of the Direct Taxes Code remove needless regulations. The accompanying promises for implementation of the recommendation of the Tax Administrative Reform Commission, cleaning up of the rules for indirect taxation, lowering of the royalty tax withholding rates and clarification on dividend distribution taxes could bring much-needed clarity and certainty in the tax laws. Those which are a subject matter of legislation will typically come into effect as per dates stipulated; others which require subsequent regulation or administrative measures could have a time lag. To illustrate, in the budget presented in the summer of 2014, the finance minister had promised three key changes in the transfer pricing laws, i.e. , roll back of advance pricing agreements, range concept and use of multiple year data; these are yet to be made fully operational. Additional benches for advance rulings again promised last year to provide certainty in tax laws were belatedly announced last week and will be functional only once appointments are completed. It can only be hoped that the promises of this season will have a quicker implementation.

By proactively legislating that there will be no minimum alternate tax on select category of investors, amending the provisions to remove impediments for real estate investment trusts and defining rules for “no permanent establishment" on presence of fund managers, potential dispute and litigation has been avoided and capital flows and investment have been welcomed. The fine print, however, is not as promising, as the detailed rules, when read, cause concern, such as the question on whether minimum alternate tax will be pursued by the tax man in all situations other than where it is explicitly exempted by Parliament. Equally, the legalese around enabling provision for presence of fund managers appears quite complex and constraining. Looks like the draftsmen do not share the same liberal thinking as the finance minister.

The crackdown on illegal holding of assets and income outside India was expected, but the emphasis and aggression of the finance minister on this subject is clearly to address the political constituency that there will be incentives for investors and material adverse consequences for evaders. There were also some expectations that were belied around the emerging e-commerce industry which would have hoped for a roadmap for taxation standards. In summary, the budget does reflect a noble intent and an understanding of what the investors need to get capital flows working for investment and job creation.

Gokul Chaudhri is leader-direct tax, BMR & Associates LLP.

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