Budget Highlights For Entrepreneurs

The 2017 Indian Budget was announced on 1st February, 2017 by the Hon'ble Finance Minister Shri. Arun Jaitley. The biggest highlight in the 2017 budget was the slashing of income tax by half for individual tax payers, ban on cash transactions over Rs. 3 lakhs and reduction in holding period to 2 years for capital gains. In this article, we look at the highlights of the 2017 Budget with respect to an Entrepreneur or Business Owner in India.

Income Tax Slashed

Income tax rate has been slashed from 10% to 5% for individuals who earn between Rs.2.5 lakhs to Rs.5 lakhs. Now after rebates, even a person with a Rs.3 lakhs income could enjoy zero tax liability. Since,

proprietorship firms are taxed similar to individuals, micro enterprises having income of less than Rs.5 lakh would enjoy the benefits in tax reduction. Further, to give Micro Small and Medium Enterprises a boost, the income tax for those MSMEs with an annual turnover of upto Rs 50 crore has been reduced to 25%. The reduction in income tax would give many MSMEs a 5% decrease in their tax bill.

Tax Break for Startups

Continuing to build on the

2016 Budget by extending special support for Startups, the Finance Minister has increased the period of profit-linked deductions available to Startups to 3 out of 7 years from the current 3 out of 5 years. However, the tax breaks is only available on the profits made by startups for 3 years and the Startup must be recognised by the DIPP (Department of Industrial Policy & Promotion). Also, the carry forward of losses in respect of start-ups, the condition of continuous holding of 51% of voting rights has been relaxed - subject to the condition that the holding of the original promoter/promoters continues.

Minimum Alternative Tax (MAT) Carry Forward

In the 2017 Budget, it has been announced that businesses would be allowed to carry forward their MAT credit for 15 years from the present 10 years.

Reducing Compliance

Threshold limit for audit of business entities who opt for

presumptive income scheme has been increased from Rs. 1 crore to Rs. 2 crores. Similarly, the threshold for maintenance of books for individuals and HUF increased has been increased from a turnover of Rs.10 lakhs to Rs.25 lakhs or income from Rs. 1.2 lakhs to Rs. 2.5 lakhs Finally, under the presumptive taxation scheme for professionals with receipt upto Rs. 50 lakhs per annum, advance tax can be paid in four instalment instead of one.

Stimulating Bank Credit

To stimulate bank credit to businesses, various measures have been announced as follows in the 2017 Budget:

The allowable provision for Non-Performing Asset (NPA) of Banks has been increased from 7.5% to 8.5% to improve the risk appetite of Banks.
In line with the ‘Indradhanush’ mission, Rs. 10,000 crores has been allocated in the 2017 Budget for recapitalisation of Banks.
Lending target under Pradhan Mantri Mudra Yojana hase been increased to Rs. 2.44 lakh crores. Priority under the scheme will be given to borrowers from certain backgrounds like Dalits, Tribals, Backward Classes.

Real Estate Industry

The

real estate and infrastructure industry contributes a major chunk of the Indian GDP. The recent demonetisation move has significantly affected the real estate sector and to give fillip to the sector, major announcements have been made. Under the scheme for profit-linked income tax deduction for promotion of affordable housing, carpet area instead of built up area of 30 and 60 meters will be counted. Further, the 30 square meter limit would apply only in case of municipal limits of 4 metropolitan cities, whereas for the rest of the country, a limit of 60 square meters would apply. For builders who have stock-in-trade, tax on notional rental income would only be applicable after one year of the end of the year - in which completion certificate is received. Also, in case a joint development agreement is signed for development of property, the liability to pay capital gain tax would arise only from the year the project is completed.

Capital Gains Exemption

There is a reduction in the holding period for computing long term

capital gains from transfer of immovable property from 3 years to 2 years. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 4.2001 for all classes of assets including immovable property.

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Frequently Asked Questions

Common questions about 2017 Indian Budget Impact on Entrepreneurs.

The 2017 Budget reduced income tax rates for individuals earning between Rs. 2.5 lakhs to Rs. 5 lakhs from 10% to 5%. This benefit also applies to proprietorship firms. For MSMEs with an annual turnover up to Rs. 50 crore, the income tax rate has been reduced to 25%.

The Budget extended the period of profit-linked deductions available to startups from 3 out of 5 years to 3 out of 7 years. Additionally, the condition of continuous holding of 51% voting rights has been relaxed for startups to carry forward losses, as long as the original promoters continue to hold shares.

The 2017 Budget increased the period for which businesses can carry forward their MAT credit from 10 years to 15 years.

The threshold limit for audit of business entities opting for the presumptive income scheme was increased from Rs. 1 crore to Rs. 2 crores. The turnover threshold for maintaining books was also raised from Rs. 10 lakhs to Rs. 25 lakhs for individuals and HUFs.

The allowable provision for Non-Performing Assets (NPAs) of banks was increased from 7.5% to 8.5% to improve their risk appetite. Rs. 10,000 crores was allocated for recapitalization of banks, and the lending target under the Pradhan Mantri Mudra Yojana was increased to Rs. 2.44 lakh crores.

For affordable housing projects, the carpet area instead of built-up area will be considered for tax deductions. The notional rental income tax for unsold housing stock will be applicable only after one year of receiving the completion certificate.

The holding period for computing long-term capital gains from transferring immovable property was reduced from 3 years to 2 years. The base year for indexation was shifted from 1.4.1981 to 1.4.2001 for all asset classes, including immovable property.

For affordable housing projects, the carpet area instead of built-up area of 30 and 60 square meters will be considered for tax deductions. The 30 square meter limit will apply only in metropolitan cities, while the 60 square meter limit will apply in other areas.

For professionals with receipts up to Rs. 50 lakhs per annum, advance tax can now be paid in four instalments instead of one lump sum payment.

Under the enhanced lending target of the Pradhan Mantri Mudra Yojana, priority will be given to borrowers from Dalit, Tribal, and Backward Class communities.