Budget 2020 marks the beginning of the decade and lays down the road map for government to achieve its target of $5 trillion economy by FY 2025. Amidst economic slowdown, falling GDP rates, declining investments and demand, a big booster to the corporates was announced during September 2019 by slashing corporate income tax rates.
In the midst of sluggish demand, it was further expected that there would be significant reforms to re-start/kick start the economic activities. Late last year, the finance minister has introduced the National Infrastructure Pipeline Plan that would see India investing 102 trillion rupees in various infrastructure projects. The Finance Minister has announced a slew of measures in the budget to increase economic activities and boost consumption. This has resulted in a deviation from the tight fiscal deficit path by a few percentage points.
On the tax front, it was widely expected that some relief in terms of change in personal tax slab would be on the government's agenda. On this point, the government has delivered. However, instead of a blanket reduction in tax rates/rejig of tax slabs, the government has proposed an alternative simplified tax regime for computation of income of individuals and HUFs which is devoid of any exemptions/deductions. The following table highlights the change in tax rates under the Old and new tax regime. While the Government has stated revenue foregone on individual taxes, certain other measures introduced are likely to more than makeup for the revenue foregone. These are:
Widening the scope of Tax Collected at Source (TCS) to include remittance under Liberalised Remittance Scheme, selling of overseas tour package of Rs 7 lakhs or more (subject to conditions)
Sale of goods by seller having turnover exceeding Rs 10 Crore liable to collect TCS from a buyer who pays Rs 50 Lakhs or more in a financial year.
New levy of TDS at 1 per cent on e-commerce transactions in case of payments made by the e-Commerce operator to e-commerce participant in excess of Rs 5 Lakhs provided the e-commerce participant provides his PAN.
Significant corporate tax amendments:
Removing dividend distribution tax (DDT) and moving to a classical system of taxing dividend in the hands of shareholders/unitholders. Cascading effect of dividend is also proposed to be addressed subject to conditions. For Multi-national companies, this is extremely positive since the foreign parent shareholder can apply lower withholding tax rates under the applicable double taxation avoidance agreement. However, expenses incurred in relation to earning such dividend income would be capped at 20%.
Given the number of appeals pending before various appellate authorities and the tax demand involved therein, and also buoyed by the success of the amnesty scheme for indirect taxes, the government has announced a Dispute Resolution scheme for direct tax. The dispute can be settled by paying principal amount of tax, with a waiver of interest and penalty, if settlement of disputes is made before 31st March 2020, or with further additional amounts if the same is done by 30th June 2020 which is the sunset date for the scheme.
As a relief to small and medium enterprises, limit for applicability of tax audit has been increased from turnover of INR 1 Cr to INR 5 cr subject to the condition that receipts/payments in cash should be less than 5%. In line with the objectives behind the introduction of faceless assessments, faceless appeal scheme before Commissioner of Income-tax (Appeals) is proposed to be prescribed. For facilitating the ease of compliance, foreign companies would not be required to file a return of income if it derives income from royalty and fees for technical services and tax thereon has been deducted under the Income-tax Act. In order to reduce the litigation on real estate transaction on account of deemed stamp duty valuation, the tolerance band has been extended from 5% to 10% of sales consideration.
Overall, it appears to be a balanced budget without rubbing the investors/taxpayers in the wrong way. The government has continued with its agenda of simplifying the tax structure for corporates and making it more transparent. Steps in the right direction have been taken and only time will tell us the impact of these steps towards achieving consistent, certain and transparent tax system and administration.
(The author is Partner, Deloitte India)