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India To Cut Corporate Tax Rate By Five Percent

by Mary Swire, Tax-News.com, Hong Kong

03 March 2015


In his 2015 Budget speech, India's Finance Minister, Arun Jaitley, set out his roadmap for accelerating growth and enhancing prospects for investment, including plans for a five percent cut to the corporate income tax rate.

The tax cut, which would lower the rate to 25 percent within four years, would be funded in part by a review of various tax exemptions and incentives.

In his speech, Jaitley said that while there had been a feeling of "doom and gloom" ahead of his Government taking office, India now has "reason to feel optimistic," with real gross domestic product (GDP) growth thought to have reached 7.4 percent in 2014/15 and with projections that growth will rise to between 8-8.5 percent in 2015/16.

A number of other salient measures were introduced in the Budget:

  • The service tax plus education surcharge will rise to 14 percent from 12.36 percent, ahead of the introduction of the Goods and Services Tax next year;
  • The wealth tax will be abolished and will be replaced with a two percent surcharge on those with annual incomes above INR10m (around USD161,000); and
  • A new tax evasion bill will be introduced to toughen rules and penalties for those with undeclared offshore holdings.

As part of the "Make in India" scheme, which aims to support growth and investment in domestic manufacturing, a number of new tax measures have been announced, including:

  • The rationalization of capital gains incentives for the listing of Real Estate Investment Trusts (REITs) and Infrastructure Investments Trusts (INViTs);
  • Modification of Permanent Establishment (PE) rules to encourage fund managers to relocate to India;
  • The deferral of the General Anti Avoidance Rule (GAAR) for two years;
  • The introduction of an additional investment allowance (of 15 percent) and an additional depreciation allowance (of 35 percent) for certain new manufacturing units during the period April 1, 2015, to March 31, 2020, in designated areas;
  • An allowance that depreciation allowances for new plant and machinery used for less than six months by a manufacturing unit engaged in the generation and distribution of power can be set off against tax liability in the following year;
  • A cut to the rate of tax on royalty income and fees for technical services from 25 percent to 10 percent; and
  • A reduction in basic customs duties on 22 items.

The threshold for the application of transfer pricing rules to "specified domestic transactions" also rose from INR50m to INR200m.

TAGS: Finance | tax | investment | business | India | budget | corporation tax | fees | education | manufacturing | transfer pricing | social security | dividends | penalties | services | Investment | Invest | Other | Investment | Tax

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