India Inc sees higher limits on tax-saving investments in Budget

A survey of 300 of the country’s leading corporate houses has shown that India Inc does expect Budget 2013 to come up with a kind of Super Tax for the exceptionally high earning income group to garner revenues. Finance Minister Palaniappan Chidambaram had recently kicked off a debate on taxing the super rich. In general, the survey found that Corporate India expects the Budget to be a balanced one with a thrust on agriculture and the infrastructure sectors.   [caption id=“attachment_632780” align=“alignleft” width=“380”] The corporate sector also expects the Budget to widen the personal income tax deductions given the lag in growth and the ballooning fiscal deficit[/caption] A survey conducted by global consulting firm Grant Thornton has shown that India Inc seems to have resigned to the Super Tax, given the need to widen the tax base. Corporate leaders have said the government needs to widen the base rather than increase taxes. The survey was conducted on CEOs, CFOs and other senior executives in the 300 firms across sectors, to gauge what the corporate sector expects from this year’s Budget, seen to be crucial given the slowing growth rate, global headwinds and sticky inflation. The corporate sector also expects the Budget to widen the personal income tax deductions given the lag in growth and the ballooning fiscal deficit. While India Inc does not expect any major changes in tax rates, they do expect an increase in the limits on tax-saving investments to be announced in the Budget. This, the survey found, was particularly expected in the case of housing loan interest and principal repayments. Amid new proposals, the survey found that India Inc expects the government to clarify its stand on ‘indirect transfers’ like in the Vodafone case, and clarity on domestic transfer pricing regulations. While India Inc expects positive changes on the domestic reverse charge regime for indirect taxes, fungibility between service tax and Cenvat etc is also a key expectation, it says. On transfer pricing front, there is an expectation to bring more clarity on specified domestic transactions. While introduction of safe harbor rules would certainly be helpful, India Inc does not expect much on this front, the survey shows. Among specific sectors, the financial sector is uncertain that short term capital gains would be abolished. The sector seeks clarification on characterization of income earned by foreign institutional investors (FIIs), that is ‘business income’ vis-à-vis ‘capital gain’ as well as the taxation regime for qualified foreign investors (QFIs). From indirect taxes perspective, the financial services industry believes there should be parity on the treatment of head office and branch office transactions for inbound and outbound services (in other words, if the government is taxing imports, it should also equally allow outbound services to be considered as exports), the survey says. The real estate and infrastructure sector expects 80IA exemption to include integrated township projects and SEZs and reduction in borrowing costs for promoting housing development. From the indirect taxes perspective, there appears a clear need for service tax incentives/ sops to be granted for urban residential construction, it says. Opening up foreign direct investment (FDI) in the insurance sector by increasing the foreign participation from present 24 percent to 49 percent is considered to be on the anvil. From a direct tax perspective, the insurance industry does not expect any major shift in this Budget. The pharma and healthcare industry does not seem to expect any changes under the Income Tax Act though awarding “infrastructure” status to the sector could help in its development, the respondents said. From an indirect taxes perspective, reduction in central duties is needed for nutraceuticals and health supplements in line with drugs. Further, service tax exemption is expected for conducting clinical trial research in India.