CO-OPERATIVES TO PAY ALTERNATE MINIMUM TAX AND SURCHARGE AT REDUCED RATE OF 15% AND 7% RESPECTIVELY

INCORPORATION DATE FOR START-UPS AND NEW MANUFACTURING ENTITIES TO BE ELIGIBLE FOR TAX INCENTIVES EXTENDED BY AN YEAR

NEW TAX INCENTIVES TO MAKE IFSC ATTRACTIVE

BUSINESSES MANDATED TO CUT TDS ON BENEFITS THEY GIVE TO AGENTS IF AGGREGATE VALUE OF SUCH BENEFITS EXCEED ₹ 20,000 IN A YEAR

SURCHARGE ON LONG TERM CAPITAL GAINS ARISING FROM ALL ASSETS CAPPED AT 15%

SURCHARGE AND CESS ON INCOME AND PROFITS NOT ALLOWED AS BUSINESS EXPENDITURE

PRACTICE OF SETTING OFF, OF LOSSES TO AVOID TAX ON UNDISCLOSED INCOME DETECTED DURING SEARCH AND SURVEY NOT TO BE PERMITTED

The Government, in order to provide a level playing field between co-operative societies and companies proposes to reduce the Alternate Minimum Tax rate for co-operative societies to 15 per cent from the current 18.5 per cent announced the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman while presenting the Union Budget 2022-23 in the Parliament today. She added that the Government also proposes to reduce the surcharge on co-operative societies to 7 per cent from 12 per cent at present for those having total income of more than ₹ 1 crore and up to ₹ 10 crore. She said that this would help enhance the income of cooperative societies and its members who are mostly from rural and farming communities.

Incentives to Start-ups

Stating that start-ups have emerged as drivers of growth for our economy, the Minister, in order to assist them during the COVID-19 pandemic, proposed to extend the period for incorporation of the eligible start-up by one more year up to 31^st March 2023 to provide them tax incentive for three consecutive years out of ten years from incorporation. This incentive was earlier available to eligible start-ups established before 31^st March 2022.

Incentives to Newly Incorporated Manufacturing Entities

Smt. Sitharaman said that to establish a globally competitive business environment, a concessional tax regime of 15 per cent tax was introduced by the Government for certain newly incorporated domestic manufacturing companies. The Government proposes to extend the last date for commencement of manufacturing or production under section 115BAB by one year to 31^st March 2024 from 31^st March 2023.

Incentives to IFSC

The minister said that to promote the IFSC, the Government proposes to provide that income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions.

Rationalisation of TDS Provisions

Noting that as a business promotion strategy, there is a tendency on businesses to pass on benefits to their agents, which are taxable in the hands of the agents, Smt Sitharaman said that in order to track such transactions, the Government proposes to provide for tax deduction by the person giving benefits, if the aggregate value of such benefits exceeds ₹ 20,000 during the financial year.

Rationalisation of Surcharge

Smt. Sitharaman pointed out that several works contracts terms and conditions require formation of a consortium mandatorily whose members are generally companies. She said in such cases, the income of these AOPs has to suffer a graded surcharge up to 37 per cent, which is a lot more than the surcharge on the individual companies. Therefore, she proposed to cap the surcharge of these AOP’s at 15 per cent. Further, she highlighted that the long-term capital gains on listed equity shares, units among others are liable to maximum surcharge of 15 per cent, while the other long term capital gains are subjected to a graded surcharge which goes up to 37 per cent. The Government proposes to cap the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent. The minister added that this proposal would “give a boost to the start up community and along with my proposal on extending tax benefits to manufacturing companies and start-ups reaffirms our commitment to Atma Nirbhar Bharat”.

Clarification on Health & Education Cess

Stating that the ‘Health and Education Cess’ is imposed as an additional surcharge on the taxpayer for funding specific government welfare programs, the minister, to reiterate the legislative intent, proposed to clarify that any surcharge or cess on income and profits is not allowable as business expenditure. She said that income-tax also includes surcharge and observed that it is “not an allowable expenditure for computation of business income”.

Deterrence Against Tax Evasion

Smt. Sitharaman announced that the Government proposes to provide that no set off, of any loss shall be allowed against undisclosed income detected during search and survey operations. She pointed out that It has been observed that in many cases where undisclosed income or suppression of sales among others is detected, payment of tax is avoided by setting off, of losses. This proposal would bring certainty and would increase deterrence among tax evaders, stated the minister.

Alternate minimum tax relief for co operatives with surcharge caps, expanded start up and manufacturing incentives and stronger anti evasion rules. Proposals reduce the Alternate Minimum Tax rate and surcharge for co-operative societies to improve parity with companies; extend the incorporation deadline for start-up tax incentives and the commencement period for concessionally taxed newly incorporated manufacturing companies; exempt specified IFSC incomes subject to conditions; require tax deduction where aggregate benefits to agents exceed a prescribed annual threshold; cap surcharge on long-term capital gains and associations of persons; disallow surcharge and cess as business expenditure; and prohibit set off of losses against undisclosed income detected in search or survey operations.