A series of amendments made in the Finance Bill could reverse the trend of negative capital formation in the country.
The lower rate of withholding tax of five per cent on interest of overseas borrowings will now extend to all businesses and not just the infrastructure sector.
CAPITAL GAINS TAX
There is a reduction in the rate of long-term capital gains tax on sale of unlisted securities in the hands of non-resident investors from 20 per cent to 10 per cent.
There is also a proposal to exempt subsidisation of Indian branches of foreign banks from capital gains tax, says Mr Sherry Oommen of GyanMagnus Associates, leading tax and corporate law practitioners.
Retrospective amendments relative to capital gains on sale of assets located here through indirect transfers abroad will not be used to reopen finalised assessments.
According to Mr Sherry, it is a moot point whether this will really help, as the assessment proceedings relating to most cases may still be pending.
Also, there is no expected clarification on including an exemption from interest and penalties on account of back taxes to be levied due to these amendments.
INDIRECT TRANSFER
There was also an expectation that the Finance Minister will clarify some critical issues in the context of indirect transfer of assets.
These included defining substantial value derived from India and providing for only proportionate taxation as suggested in the Direct Tax Code.
Hopefully, the proposed Central Board of Direct Taxes circular will seek to address all these issues, Mr Sherry said.
The deferral of introduction of General Anti-Avoidance Rules (GAAR) would have brought a smile on many frowning faces after the initial Budget presentation.
The Finance Minister has followed the UK government's idea of giving a 12-month notice to businesses and to tax administration alike to get their act together.
He has done well to clarify upfront that the onus of proof will now be entirely on the Revenue Department to initiate action under GAAR, Mr Sherry added.
vinson.kurian@thehindu.co.in