The Union Finance Minister Shri Arun Jaitley announcing the tax proposals in the Union Budget today said boosting employment generation through economic growth is a main objective behind these proposals. Other objectives, he said, would be for incentivizing ‘Make in India’, to promote measures for moving towards a pensioned society and for promoting affordable housing.

Such provisions to boost economic growth and employment include-100% deduction of profits for 3 out of 5 years for start-ups, during April, 2016 to March 2019, with certain riders. Similarly to promote innovation, a special patent regime with 10% rate of tax on income from worldwide exploitation of patents developed and registered in India was proposed.

Non-banking financial companies shall be eligible for deduction to the extent of 5 % of its income in respect of provision for bad and doubtful debts.

The corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding ₹ 5 crores (in the financial year ending March 2015) is proposed to be lowered to 29 % plus surcharge and cess. The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

Service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development and Entrepreneurship are also proposed to be exempted.

The determination of residency of foreign company on the basis of Place of Effective Management (POEM) is deferred by one year.

To get more investment in Asset Reconstruction Companies (ARCs), which play a very important role in resolution of bad debts, a complete pass through income-tax to securitization trusts including trusts of ARCs has been proposed. The income will be taxed in the hands of the investors instead of the trust.    

The Finance Minister also enunciated a plan for phasing-out various exemptions as the corporate tax is proposed to be reduced from 30% to 25 % over a period. Such graduated plan includes 

a)    The accelerated depreciation provided under IT Act will be limited to maximum 40 % from 1.4.2017.

b)    The benefit of deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020

c)    The benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.

d)    The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020.  

Other objectives enunciated for his tax proposals are: Additional resource mobilization for agriculture, rural economy and clean environment, use of technology for creating accountability, simplification and rationalization of taxation and reduction in litigation for providing certainty in taxation. 

Start up tax incentives expanded to spur growth while phased limits on selective corporate exemptions accompany rate reductions. Tax proposals deploy targeted incentives to boost growth and employment: a start up deduction exempting profits for a limited period under conditions; a preferential patent income regime for domestically developed patents; an optional reduced tax regime for new manufacturers that forgo certain deductions and accelerated allowances; service tax exemptions for specified skill training services; a one year deferral for residency determination by Place of Effective Management; pass through taxation for securitisation trusts to support Asset Reconstruction Companies; and phased limits on accelerated depreciation and research deductions alongside gradual corporate tax rate reduction.