The month of February may well be considered the Christmas season for Indian taxpayers, when they eagerly await the Santa (the Finance Minister here) for gifts, particularly from an income tax perspective. While the Santa and his team are busy preparing for the Union Budget 2016-17, it may be a good time to take a sneak-peek into the corporate wish list.

In the last Budget, there was a commitment by the Finance Minister to reduce the corporate tax rate from 30 per cent to 25 per cent over a period of four years. A reduction in the corporate tax rate, therefore, tops the list. A further wish in this regard is to reduce the MAT (Minimum Alternate Tax) rate and align the reduction in it with the reduction in the corporate tax rate.

The Finance Minister had also clarified last year that the deductions and exemptions under the Income Tax Act, 1961 would be phased out. Sharing a draft roadmap in November 2015, on phasing out of the deductions, was a welcome step. A definite action plan to ensure seamless phasing out would be very helpful.

Need for clarity

Rationalisation of the provisions of the Income Tax Act to bring clarity and consistency and reducing avoidable litigation has been desired by both, the tax authorities as well as the taxpayers. Here are a few areas that could be addressed. Clarity on the applicability of the provisions under section 14A of the Act and Rule 8D, to strategic investments and shares held as stock in trade, would be a welcome relief.

Further, it is expected that the Ministry will take cognizance of the fact that dividend income suffers Dividend Distribution Tax and therefore, the inclusion of dividend income for the purpose of section 14A of the Act may be revisited. Also, clarity on the tax implication of a secondment agreement is warranted. Secondment enables an Indian entity to avail the rich experience of key resources within the group entities.

The purpose of secondment is to share internal resources and thus generally there are no inter-company charges levied for employee secondment.

Time for action

Apart from that, the applicability of the Income Computation and Disclosure Standards (ICDS) that were notified on March 31, 2015, (and became applicable from April 1, 2015) may be deferred by at least one year.

Given that the ICDS is a new concept, in the absence of any clarity it may result in multiple interpretations and prolonged litigations. It should, therefore, be made applicable with effect from assessment year 2017-18 after the issuance of guidelines.

Likewise, the Place of Effective Management (PoEM) test which was introduced by the Finance Act, 2015 (effective assessment year 2016-17) for determining the tax residency for a company other than a domestic company, too, may be deferred for one year. The PoEM test may have a significant bearing on Indian multinationals and given that the PoEM test is a new condition, clarity is still awaited by taxpayers as regards its interpretation. The draft guiding principles on this were shared for public comments in December 2015. The final principles are awaited.

Act upon them

A time-bound implementation of reforms suggested by several committees set up by the government, too, is expected. Tax administration reforms suggested by the Tax Administration Reform Commission and proposed amendments to the provisions of the Income Tax Act to curb litigation and facilitate speedier disposal and also promote ease of doing business, by the Easwar Committee Report, are worth mentioning.

Hope Santa has already heard the buzz and guessed what it is all about.

The earnest taxpayer eagerly awaits the well-deserved gifts.

The writer is Partner, Deloitte Haskins & Sells LLP

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