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Opinion: Budget Gives Push to 'Make in India'

(Ashesh R Safi is a Partner and Nilesh Bhagat is a Senior Manager in Deloitte Haskins and Sells LLP)

Growth is the tag line of the Modi government and all efforts have been made towards the same by the finance minister in the current Budget. In order to give a boost to the industrialization in the states of Andhra Pradesh and Telangana, the finance minister has proposed higher additional depreciation at the rate of 35 per cent (instead of existing 20 per cent) for new specified plant and machinery installed and put to use in a manufacturing undertaking or enterprise to be set up in the notified backward areas of the states. The new plant and machinery needs to be acquired between 1 April 2015 and April 1, 2020.

The finance minister has also proposed 15 per cent additional investment allowance for such new specified plant and machinery. What is heartening to note is that this new deduction is over and above the existing 15 per cent deduction available under section 32AC of the Act (subject to fulfilment of specified conditions under both the sections).

However, in order to ensure contribution to economic growth to the backward areas of these states, the Budget also provides for restrictions on transfer of such plant and machinery for a period of 5 years. The Budget also proposes to tax the deduction allowed as income if such plant and machinery is transferred/sold before 5 years, other than in a business reorganization.

Efforts to avoid hardship for investor

The finance minister has also addressed a bone of contention between the tax payer and the department pertaining to availability of balance 50 per cent of additional depreciation for the companies in manufacturing and power sector. Currently, the additional depreciation is restricted to 50 per cent in the first year if the plant and machinery is used for less than 180 days and in the absence of clear provision regarding balance 50 per cent of such additional depreciation the tax department tend to deny the claim of the same in subsequent year. In order to remove such hardship it was proposed that the balance 50 per cent of the additional depreciation shall be allowed in the immediately succeeding previous year.

Incentive for employing new workmen extended

In order to boost the employment, the finance minister proposed to liberalise the condition attached to the tax incentive for employing the new workmen. The finance minister has proposed to reduce the requirement of employing 100 new regular employees to employing 50 new regular employees, thereby extending the incentive to smaller units.

Deferment of General Anti Avoidance Rule ("GAAR") provisions

In order to ensure that GAAR provisions are implemented as part of a comprehensive regime to deal with base erosion and profit shifting and aggressive tax avoidance, it was proposed that implementation of GAAR be deferred by two years. The Finance Minister in his speech has indicated that the investments made up to 31 March 2017 will not be subject to GAAR. This is a welcome development which will be cheered by the international community. Enactment of GAAR could have had adverse implications for foreign companies claiming exemption under treaties with Mauritius, Cyprus, and The Netherlands etc. The grandfathering provision would mean that even capital gains arising after 1 April 2017 in relation to investments made before 1 April 2017 will be protected from applicability of GAAR.

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