In the Budget Speech of 2015, the Finance Minister stated that the basic rate of 30% corporate tax in India is higher than the rates prevalent in the other major Asian economies, making India’s domestic industry noncompetitive. Also, he has indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions.

The Government proposed to implement this decision in a phased manner. As reduction in the tax rates had to be accompanied by phasing out the various tax exemptions and incentives for corporate taxpayers. Budget proposes Sunset Date for Exemption and Deduction.

 

Following proposals were initiated for Phasing out deduction under Income Tax:

• Accelerated depreciation wherever provided in IT Act will be limited to maximum 40% from 1.4.2017
• Benefit of Profit Linked Deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020
• Benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020 for Expenditure on eligible schemes
• The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020

 

ACCELERATED DEPRECIATION

 

Incentives currently available in the Act

Accelerated depreciation is provided to certain industrial sectors in order to give impetus for investment. The depreciation under the Income-tax Act is available up to 100% in respect of certain block of assets.

 

Amendment Proposed

It is proposed to amend the rates of depreciation to provide that highest rate of depreciation under the Income-tax Act should be restricted to 40%. The amendment is proposed w.e.f 01.4.2017. The new rate is proposed to be made applicable to all the assets (whether old or new) falling in the relevant block of assets.

 

PROFIT LINKED DEDUCTIONS

 

Incentives currently available in the Act

Weighted deduction from the business income to the extent of 175 per cent of any sum paid to an approved scientific research association which has the object of undertaking scientific research. Similar deduction is also available if a sum is paid to an approved university, college or other institution and if such sum is used for scientific research.

 

Amendment Proposed

Weighted deduction shall be restricted to 150 per cent from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20) and deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards)

 

EXPENDITURE ON ELIGIBLE SCHEMES

 

Incentives currently available in the Act

Profit linked deductions for units in SEZ for profit derived from export of articles or things or services

 

Amendment Proposed

No deduction shall be available to units commencing manufacture of article or thing or start providing services on or after 1st day April, 2020. (from previous year 2020-21 onwards)

 

WEIGHTED DEDUCTION

 

Incentives currently available in the Act

Weighted deduction of 150 per cent on any expenditure incurred (not being expenditure in the nature of cost of any land or building) on any notified skill development project by a company.

 

Amendment Proposed

Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards).

________________________________________________________________________________________