The Finance Minister Shri Arun Jaitley presenting the Budget in Lok Sabha today proposed to defer the applicability of the General Anti Avoidance Rule (GAAR) by two years. Investments made up to 31.03.2017 shall not be subjected to GAAR.

 Finance Minister Shri Jaitley proposed pass-through status to all sub-categories of Category I as well as Category II of Alternative Investment Funds (AIF) governed by regulations of Securities Exchange Board of India (SEBI) to streamline the taxation regime of AIFs.

 Shri Jaitley proposed to modify the Permanent Establishment norms to facilitate relocation of fund managers of off-shore funds in India.

 An additional investment allowance of 15% and additional depreciation of 15% to new manufacturing units set up in notified areas of Andhra Pradesh and Telangana from 01.04.2015 to 31.03.2020 is proposed by the Finance Minister in his Budget Speech.

 With respect to the Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INViTs), the Finance Minister proposed that the treatment granted to the sponsor on offloading of units at the time of listing will be the same as that granted if the shareholding of the Special Purpose Vehicle (SPV) had been offloaded at the stage of direct listing. Further, the Finance Minister said that rental income from real estate assets directly held by REITs are proposed to be allowed to pass through and taxed in the hands of the unit holders of the REIT.

 Shri Arun Jaitley proposed to amend Section 194LD of the Income Tax Act to extend the period of applicability of reduced rate of tax at 5% for income of foreign investors including FIIs and QFIs from corporate bonds and government securities. The period of applicability is proposed to be extended from 31.05.2015 to 30.06.2017.

 Seeking to address the problems faced by small companies and to facilitate the inflow of technology, the Finance Minister proposed to amend Section 115 of the Income Tax Act thereby reducing the rate of tax on royalty and fees for technical services from 25% to 10%.

 To facilitate the generation of employment Shri Jaitley proposed that the tax benefit under section 80JJAA of the Income Tax Act will be available to a ‘person’ deriving profits from manufacture of goods in a factory and paying wages to new regular workmen. The amendment seeks to reduce the eligibility threshold from minimum 100 workmen to 50 workmen.

 For new plant and machinery installed by a manufacturing unit or a unit engaged in generation and distribution of power an additional depreciation of 20 % is proposed by the Finance Minister. However, only 10 % of additional depreciation is proposed to be allowed if the asset is installed after 30th September of the previous year with the remaining 10 % to be allowed in the subsequent previous year.

GAAR deferral protects prior investments while the Budget advances tax incentives for manufacturing, funds, REITs and foreign investors. Deferment of GAAR applicability is proposed to shield prior investments, while granting pass-through status to all Category I and II AIF sub-categories and amending Permanent Establishment norms to ease relocation of offshore fund managers. The Budget proposes regional additional investment allowance and enhanced depreciation for new manufacturing units, a staggered additional depreciation for new plant and machinery, REIT/InvIT sponsor treatment alignment and pass-through of rental income, extension of reduced withholding rates for foreign investors' debt income, reduction of tax on royalty and technical fees, and broadened employment-linked tax deductions for manufacturers.