February 2020 / India

February 3 2020

Union Budget 2020 presented to Parliament – indirect tax

On 1 February 2020, the Finance Minister presented the Union Budget 2020 before Parliament. The key amendments introduced in the Finance Bill 2020 regarding indirect tax are summarized below.
  • A simplified return will be implemented from 1 April 2020 with features like SMS-based filing for nil return, return pre-filling and improved input tax credit flow.
  • The refund process has been simplified and automated with no human interface.
  • Effective from February 2020, electronic invoicing will be implemented in a phased manner, and on an optional basis, to facilitate compliance and return filing.
  • To improve tax compliance, the use of a dynamic QR code is proposed for consumer invoices in which goods and services tax (GST) parameters will be captured for payments made through the QR code.
  • Customs duty exemptions will be comprehensively reviewed by September 2020, and suggestions are invited for aligning them with the needs of changing times and ease of doing business.
  • Keeping in view the needs of the micro, small and medium-sized enterprises (MSME) sector, customs duty has been raised on items such as footwear and furniture.
  • The imposition of nominal health cess by way of customs duty on imports of medical equipment has been introduced to generate resources for health services.
  • Custom duty rates are revised on electric vehicles and mobile phone components.
  • Customs duty on imports of newsprint and lightweight coated paper has been reduced from 10% to 5%.
  • The anti-dumping duty on PTA (input for textile fibres and yarns) has been abolished.
  • As a revenue measure, excise duty by way of national calamity contingent duty on cigarettes and other tobacco products has been increased.
February 3 2020

Union Budget 2020 presented to Parliament – personal tax

On 1 February 2020, the Finance Minister presented the Union Budget 2020 before Parliament. The key amendments introduced in the Finance Bill 2020 regarding personal tax are summarized below. To provide significant relief to individual taxpayers and to simplify income tax law, a new simplified personal income tax regime has been introduced. The proposed tax structure under the new regime is as follows:
Taxable income (INR) New tax rate
up to 250,000 exempt
250,001 – 500,000 5%
500,001 – 750,000 10%
750,001 – 1,000,000 15%
1,000,001 – 1,250,000 20%
1,250,001 – 1,500,000 25%
above 1,500,000 30%
The new regime is optional. However, taxpayers will have to forego certain deductions and exemptions.
February 3 2020

Union Budget 2020 presented to Parliament – corporate tax

On 1 February 2020, the Finance Minister presented the Union Budget 2020 before Parliament. The key amendments introduced in the Finance Bill 2020 regarding corporate tax are summarized below.

Removal of dividend distribution tax (DDT)

  • To increase the attractiveness of the Indian equity market and to provide relief to a large class of investors, the classical system of dividend taxation has been adopted under which companies are not required to pay DDT.
  • Dividends will be taxed only in the hands of the recipients at the applicable rate.
  • To remove the cascading effect, the dividends received by a holding company from its subsidiary will be allowed as a deduction, subject to certain conditions.

Concessional rate of income tax for power generation companies

To attract investment in the power sector, the concessional corporate tax rate of 15% has been extended to include companies engaged in the generation of power/electricity.

Tax concession for other foreign investments

  • The concessional withholding tax rate under section 194LC of the Income Tax Act 1961 (the Act) for interest payments made to non-residents in respect of funds borrowed and bonds issued has been extended up to 30 June 2023.
  • The period of concessional withholding under section 194LD of the Act for interest payments made to foreign portfolio investors (FPIs) and qualified foreign investors (QFIs) in respect of bonds issued by Indian companies and government securities has been extended up to 30 June 2023 and also applies for municipal bonds.
  • To incentivize listing of bonds at the International Financial Services Centre (IFSC) exchange, the withholding rate has been reduced to 4% on interest payments made on bonds listed on this exchange.

Tax benefits for start-ups

  • To boost the start-up ecosystem, the tax burden for employees of such start-ups is eased through deferral of tax payments on employee stock option plans (ESOPs) by 5 years, or until employees leave the company or sell their shares, whichever is earlier.
  • 100% deduction of profits for 3 consecutive years out of 10 years is allowed if the total turnover does not exceed INR 1 billion.

Concessional tax rate for co-operative societies

To bring parity between co-operative societies and companies, co-operatives will have the option to pay income tax at a lower tax rate of 22% plus applicable surcharge and cess, subject to certain conditions.
February 3 2020

Union Budget 2020 presented to Parliament – tax administration and other measures

On 1 February 2020, the Finance Minister presented the Union Budget 2020 before Parliament. The key amendments introduced in the Finance Bill 2020 regarding tax administration and other measures are summarized below.

Dispute settlement scheme ("Vivad Se Vishwas" Scheme)

  • Under the proposed scheme, taxpayers will be required to pay only the disputed taxes and will be granted a complete waiver of interest and penalties.
  • However, such a waiver will be available only if the disputed tax is paid by 31 March 2020. The scheme will be open until 30 June 2020 and can be availed after 31 March 2020 upon payment of some additional amount.
  • Taxpayers for whom appeals are pending at any level can benefit from this scheme.

Other administration

  • In line with the faceless assessment scheme already introduced, the Act has been amended to enable faceless appeals.
  • To enhance trust between taxpayers and administration and efficiency of the delivery system of the income tax department, amendments to the provisions of the Income Tax Act 1961 will be made to mandate the Central Board of Direct Taxes (CBDT) to adopt the "taxpayers charter".

Tax concession for affordable housing

  • To ensure that more people can claim the benefit from an additional deduction up to INR 150,000 for interest paid on loans taken out for the purchase of an affordable house, the date of loan approval for benefiting from this additional deduction is extended by 1 year to 31 March 2021.
  • To boost the supply of affordable houses, the date of approval of affordable housing projects is extended by 1 year to 31 March 2021 for developers of such affordable houses to benefit from a tax holiday on the profits earned.

Concession to real estate transactions

To minimize the hardship in real estate transactions, the difference between consideration value and circle rate (guideline value prescribed by the government) will be considered income in the hands of both the purchaser and seller only if such difference is more than 10%.

Financial sector

  • The Finance Bill 2020 seeks to amend the Banking Regulation Act for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the Reserve Bank of India (RBI).
  • The limit of non-banking financial companies (NBFC) to be eligible for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is proposed to be reduced from an existing asset size of INR 5 billion to INR 1 billion or an existing loan size of INR 10 million to INR 5 million.
  • The Finance Bill 2020 seeks to amend the Factor Regulation Act to enable NBFCs to extend invoice financing to the MSMEs through TReDS (Trade Receivables Discounting System).

Financial markets

  • The limit of foreign portfolio investors (FPIs) in corporate bonds will be increased to 15% (from the existing 9%) of the outstanding stock of corporate bonds.
  • The Finance Bill 2020 seeks to formulate new legislation for laying down a mechanism for netting of financial contracts.
  • New debt-based exchange traded funds (ETFs) consisting primarily of government securities are proposed to be expanded.
  • To provide additional support to the partial credit guarantee scheme for addressing the liquidity constraints of NBFCs, a mechanism is proposed to be devised.
February 19 2020

India – Country Key Features

A. Direct taxation: Companies

1. Resident companies

Residence A corporation is resident in India, if it is incorporated in India or has its registered office in India, or its place of effective management is in India
Tax base Worldwide
Corporate tax rates 30% general corporate tax rate (effective tax rate is higher after taking into account surcharge and cess) 25% if turnover is less than INR 500 million in FY2015-16 (applicable for assessment year 2018/19) 25% if turnover is less than INR 2.5 billion in FY2016/17 (applicable from assessment year 2019/20) 25% for qualified manufacturing/research companies 10% if patent is developed and registered in India Surcharge (SC) of 7% where total income exceeds INR 10 million and 12% where total income exceeds INR 100 million (surcharge is 5% and 10% respectively prior to assessment year 2016/17) 2% education cess (EC) and 1% secondary and higher education cess (SHEC) levied on income tax payable (discontinued from 1 April 2018) 4% health and education cess (HEC) levied on income tax payable (effective from 1 April 2018)
Alternative minimum tax Yes, alternative minimum tax of 18.5% plus applicable surcharge and cess is imposed on the adjusted book profits of corporations whose tax liability is less than 18.5% of their book profits
Capital gains Part of business income or specific regime depending on nature of taxpayer’s business
Loss carry-forward 8 years, subject to ownership continuity test
Loss carry-back No
Unilateral double taxation relief Yes

2. Non-resident companies

Corporate tax rates 40% (effective tax rate is higher after taking into account surcharge and cess) Surcharge (SC) of 2% where total income exceeds INR 10 million, and 5% where total income exceeds INR 100 million 2% education cess (EC) and 1% secondary and higher education cess (SHEC) levied on income tax payable (discontinued from 1 April 2018) 4% health and education cess (HEC) levied on income tax payable (effective from 1 April 2018)
Capital gains on sale of shares in resident companies Yes
Capital gains on sale of immovable property Specific regime; lower tax rates apply

Withholding tax rates

Branch profits No
Dividends No (a final dividend distribution tax is payable by the dividend-paying company at 15% plus SC and HEC)
Interest 5% plus applicable SC and HEC for interest on long-term loans/bonds 10% plus applicable SC and HEC for foreign currency convertible bonds 20% plus SC and HEC for others
Royalties 10% plus applicable SC and HEC
Fees (technical) 10% plus applicable SC and HEC
Fees (management) 10% plus applicable SC and HEC

3. Specific issues

Participation relief Inbound dividends: no (benefit of concessional rate of 15% available, if 26% plus shareholding) Outbound dividends: no (benefit of adjustments with taxes paid on inbound dividends (dividend distribution tax) available, if 50% plus shareholding)
Group treatment No
Incentives Research companies Mineral oil production Cold chain facilities Shipping and air transportation Hotels Hospitals Power sector Manufacturing sector

Anti-avoidance

Transfer pricing legislation Yes
Thin capitalization legislation No (but interest deduction is limited in certain cases)
Controlled foreign company legislation No
General anti-avoidance rule (GAAR) Yes
Other anti-avoidance legislation Yes

B. Direct taxation: Individuals

1. Resident individuals

Residence Based on the number of days present in India in a tax year
Taxable income Worldwide
Income tax rates Progressive Top rate 30% (on income over INR 1 million) (effective tax rate is higher after taking into account surcharge and cess) Additional surcharge of 10% applicable on tax payable where total income exceeds INR 5 million but not INR 10 million. Additional surcharge of 15% applicable on tax payable where total income exceeds INR 10 million 2% education cess (EC) and 1% secondary and higher education cess (SHEC) levied on income tax payable (discontinued from 1 April 2018) 4% health and education cess (HEC) levied on income tax payable (effective from 1 April 2018)
Alternative minimum tax Yes; however, AMT is not applicable to individuals if their adjusted total income does not exceed INR 2 million
Capital gains Specific regime
Unilateral double taxation relief Yes
Social security contributions Various contributions with a complex rate structure

2. Non-resident individuals

Income tax rates Progressive Top rate 30% (on income over INR 1 million) (effective tax rate is higher after taking into account surcharge and cess) Additional surcharge of 10% applicable on tax payable where total income exceeds INR 5 million but not INR 10 million. Additional surcharge of 15% applicable on tax payable where total income exceeds INR 10 million 2% EC and 1% SHEC levied on income tax payable (discontinued from 1 April 2018) 4% health and education cess (HEC) levied on income tax payable (effective from 1 April 2018)
Capital gains on sale of shares in resident companies Yes
Capital gains on sale of immovable property Specific regime; lower tax rates apply

Withholding tax rates

Employment income Top rate 30% (on income over INR 1 million)
Dividends No (a final dividend distribution tax is payable by the dividend-paying company at 15% plus SC and HEC)
Interest 5% plus applicable SC and HEC for interest on long-term loans/bonds 10% plus applicable SC and HEC for foreign currency convertible bonds 20% plus SC and HEC for others
Royalties 10% plus applicable SC and HEC
Fees (technical) 10% plus applicable SC and HEC
Fees (directors) 10% plus applicable SC and HEC

C. Indirect taxation: Value added tax (VAT)/Goods and services tax (GST)

Taxable events As from 1 July 2017, GST is levied on supply of goods and services. For all intra-state supplies, Central GST and State GST (or Union Territory GST, as the case may be) is applicable, whereas for all inter-state supplies (including imports), Integrated GST applies
VAT/GST (standard) 12% and 18%
VAT/GST (reduced) 0% and 5%
VAT/GST (increased) 28% + varied Cess
Registration/deregistration threshold INR 2 million in general INR 1 million in specified north-eastern states
VAT group No

D. Other taxes

Inheritance and gift taxes No
Net wealth tax (individual) No (abolished from 1 April 2015)
Net wealth tax (corporate) No (abolished from 1 April 2015)
Real estate taxes Corporations: no Individuals: yes (rates vary among the states)
Capital duty No
Transfer tax Yes (local tax on immovable property, securities transaction tax on shares and other securities)
Stamp duty Yes
Excise duties No (subsumed in GST)
Other main taxes Dividend distribution tax Distribution tax on buyback Equalization levy

E. General information

Sources of tax law Income Tax Act Central GST Act Integrated GST Act State GST Act Union Territory GST Act
Main types of business entities Company Limited liability partnerships Partnership Cooperative Joint Hindu Family Sole proprietorship Representative office Branch of a foreign corporation
Accounting principles Accounting Standards issued by the Institute of Chartered Accountants of India (largely based on IAS) For computation of taxable income, Income Computation and Disclosure Standards issued by the Central Board of Direct Taxes
Currency Indian rupee (INR)
Foreign exchange control Yes, a simplified regulatory regime for foreign exchange transactions and liberalized capital account transactions Current account transactions are permitted unless specifically prohibited The Central Bank monitors capital account transactions
Official websites Government of India (Income Tax Department)