D. Measures to phase out deductions
Phasing out of deductions and exemptions
The Finance Minister in his Budget Speech, 2015 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. In this regard, broad guiding principles had been put in the public domain for receiving comments from the stakeholders. These guiding principles are listed below for reference.
(a) Profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate tax payers.
(b) The provisions having a sunset date will not be modified to advance the sunset date. Similarly the sunset dates provided in the Act will not be extended.
(c) In case of tax incentives with no terminal date, a sunset date of 31.3.2017 will be provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions of the Act.
(d) There will be no weighted deduction with effect from 01. 04.2017.
Based on the above guiding principles and taking into account the response of the stakeholders on the proposed phasing out plan, the following incentives under the Act are proposed to be phased out in the manner as tabulated below in Table 1 and Table 2:
Table 1 : Proposed Phase out plan of incentives (Profit linked Deductions/weighted deduction) available under the Act.
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Sl. No
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Section/
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Incentive currently available in the Act
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Proposed phase out measures/ Amendment
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1
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10AA- Special provision in respect of newly established units in Special economic zones (SEZ).
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Profit linked deductions for units in SEZ for profit derived from export of articles or things or services
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No deduction shall be available to units commencing manufacture or production of article or thing or start providing services on or after 1st day April,2020. (from previous year 2020-21 onwards).
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2
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35AC-Expenditure on eligible projects or schemes.
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Deduction for expenditure incurred by way of payment of any sum to a public sector company or a local authority or to an approved association or institution, etc. on certain eligible social development project or a scheme.
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No deduction shall be available with effect from 1.4.2017 (i.e from previous year 2017-18 and subsequent years).
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3
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35CCD-Expenditure on skill development project.
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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.
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Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards).
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4
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Section 80IA; 80IAB, and 80IB Deduction in respect of profits derive from
a) development, operation and maintenance of an infrastructure facility (80-IA)
b) development of special economic zone (80-IAB)
c) production of mineral oil and natural gas [80-IB(9)]
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100 per cent profit linked deductions for specified period on eligible business carried on by industrial undertakings or enterprises referred in section 80IA; 80IAB, and 80IB.
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No deduction shall be available if the specified activity commences on or after 1st day April, 2017. (i.e from previous year 2017-18 and subsequent years).
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Table 2 : Proposed Phase out plan of incentives (Accelerated Depreciation/Weighted Deduction) available under the Act.
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Sl.
No
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Section/
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Incentive currently available in the Act
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Proposed phase out measures/ Amendment
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1
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32 read with rule 5 of Income-tax Rules, 1962- Accelerated
Depreciation.
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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.
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To amend the new Appendix IA read with rule 5 of Income-tax Rules, 1962 to provide that highest rate of depreciation under the Income-tax Act shall be restricted to 40% w.e.f 01.4.2017. (i.e from previous year 2017-18 and subsequent years).
The new rate is proposed to be made applicable to all the assets (whether old or new) falling in the relevant block of assets.
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35(1)(ii)- Expenditure on scientific research.
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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.
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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).
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3
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35(1)(iia)-
Expenditure on scientific research.
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Weigted deduction from the business income to the extent of 125 per cent of any sum paid as contribution to an approved scientific research company.
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Deduction shall be restricted to 100 per cent with effect from 01.04.2017 (i.e. from previous year 2017-18 and subsequent years).
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4
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35(1)(iii)- Expenditure on scientific research.
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Weighted deduction from the business income to the extent of 125 per cent of contribution to an approved research association or university or college or other institution to be used for research in social science or statistical research.
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Deduction shall be restricted to 100 per cent with effect from 01.04.2017 (i.e. from previous year 2017-18 and subsequent years).
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5
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35(2AA)- Expenditure on scientific research.
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Weighted deduction from the business income to the extent of 200 per cent of any sum paid to a National Laboratory or a university or an Indian Institute of Technology or a specified person for the purpose of approved scientific research programme.
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Weighted deduction shall be restricted to 150 per cent with effect from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20).
Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards).
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6
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35(2AB)- Expenditure on scientific research.
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Weighted deduction of 200 per cent of the expenditure (not being expenditure in the nature of cost of any land or building) incurred by a company, engaged in the business of bio-technology or in the business of manufacture or production of any article or thing except some items appearing in the negative list specified in Schedule-XI, on scientific research on approved in-house research and development facility.
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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).
Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards).
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7
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35AD- Deduction in respect of specified business.
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In case of a cold chain facility, warehousing facility for storage of agricultural produce, an affordable housing project, production of fertiliser and hospital weighted deduction of 150 per cent of capital expenditure (other than expenditure on land, goodwill and financial assets) is allowed.
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In case of a cold chain facility, warehousing facility for storage of agricultural produce, hospital, an affordable housing project, production of fertilizer, deduction shall be restricted to 100 per cent of capital expenditure w.e.f. 01.4.2017 (i.e. from previous year 2017-18 onwards).
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8.
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35CCC- Expenditure on notified agricultural extension project.
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Weighted deduction of 150 per cent of expenditure incurred on notified agricultural extension project.
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Deduction shall be restricted to 100 per cent from 1.4.2017 (i.e from previous year 2017-18 onwards).
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These amendments mentioned in table 2 will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.
[Clause 8, 15, 17, 18, 19, 20, 39, 40 & 42]
