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Budget Analysis 2007 |
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Income Tax : -
● Proposal :
No change in the basic corporate tax rate(30%).. for SMEs (having total
income less than Rs. 1 Cr), surcharge of 10% proposed to be removed.
The Impact
The effective tax rate for firms with less than RS. 1 Cr income would
reduce from 33.66% to 30.09%.
● Proposal:
Additional cess of 1% proposed for funding of secondary and higher
education:
The Impact:
Marginal increase in effective tax rates- for domestic companies from
33.66% to 33.99%(other than SMEs), for foreign companies from 41.82% to
42.23%, for MAT paying companies from 11.22% to 11.33%.
● Proposal:
Companies claiming tax holiday under section 10A and 10B are now covered
under MAT provisions.
The Impact:
Profits eligible for tax holiday under section 10A would now form part
of book-profits and will be taxed a 11.33% under MAT provisions.
However, units enjoying tax holiday under section 10AA (SEZ scheme)
continue to remain out of MAT ambit.
● Proposal:
Exemption for venture capital companies/venture capital funds now
restricted to specified industries.
The Impact:
Exemption to VCC/VCF would now be available only for investments in
companies engaged in nanotechnology, IT related to hardware and software
development, seed research and development, biotechnology ,and so on.
● Proposal:
Weighted deduction under section 35(2AB) for scientific R&D extended to
March 31,2012.
The Impact:
This would promote scientific R&D in sectors like Biotechnology, drugs,
pharma, and electronic/telecommunication equipment.
● Proposal:
Work Contractor now not eligible for Tax holiday under section 80IA for
infrastructure facility, industrial park.
The Impact:
Tax holiday would be available only to the person who makes investment
himself and executes the work. This proposal is with a retrospective
effect from April 1, 2000.
● Proposal:
Tax holiday under section 80IA no longer available to undertakings
undergoing amalgamation/demerger.
The Impact:
This proposal would discourage restructuring of tax holiday
undertakings.
● Proposal:
Scope of tax holiday expanded.
The Impact:
Tax holiday under section 80IA would now be available for 10 years to
enterprise engaged in development, operation and maintenance of
navigational channel in the sea , and also in respect of laying and
operating cross-country natural gas distribution network, including gas
pipelines and storage facilities being integral part of the network.
● Proposal:
Tax holiday for undertakings engaged in generation, transmission or
distribution of power extended.
The Impact:
The 10 year tax benefit to such entities was available only if such
activities commenced after March 31,2007. This now stands by one more
year.
● Proposal:
Additional conditions introduced to ensure tax holiday to new SEZ units.
The Impact:
Migration of existing units would become difficult. The fears of revenue
loss have been mitigated.
● Proposal:
TDS on rent, plant or equipment reduced to 10%.
The Impact:
Relief in case of transaction involving lease or hire of machinery,
plant or equipment, where generally margins are thin. The earlier rate
was 20%.
● Proposal:
TDS on professional /technical/service fees/royalties increased to 10%.
The Impact:
As against 5%, 10% would be withheld at source on payments made in
respect of professional fees/technical service fees or even royalty.
This could impact the cash flow for service providers.
● Proposal:
A procedural change as regards payment of advance FBT.
The Impact:
Quarterly computation of FBT has been done away with. It has been
brought in line with the regular advance tax deadlines for corporate .
Now, advance FBT will be payable in four installments of 15%, 45%, 75%
and the entire amount.
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