India’s Budget 2019-20: Expanding Lower Corporate Rate, Increasing Tax Rate For Higher Earners

; posted on
July 9th, 2019

India's Union Budget for 2019-20 was presented to Parliament, proposing changes to the tax laws starting 1 April 2019. This Finance Bill follows the interim budget announcement in February 2019 which was made ahead of the recent national elections.

Details

Under the latest Union Budget, a number of tax laws will change including a significant increase in the rate of surcharge for high income earners. There is a proposed introduction of two higher surcharge rates in addition to the current 10% and 15% rates for individual income tax.

Meanwhile, the standard corporate tax rate is maintained at 30%, while the maximum income threshold for the reduced corporate tax rate of 25% is proposed to be increased from INR 2.5 billion to INR 4 billion. Further, in relation to reporting requirement for multinational company, the draft budget amended the CbC reporting rules by clarifying that in cases where an alternate reporting entity (ARE) in India is designated to file a CbC report, it is the accounting year of the ultimate parent of the MNE group, and not the ARE, that is referenced for the purpose of the CbC reporting obligation. This amendment applies with retrospective effect from 1 April 2017. Further, the draft budget also provide clarity on master file rules by reiterating that constituent entity of an MNE must keep and maintain the Master file and submit the required form even when there is no international transaction undertaken by the constituent entity.

Additionally, the draft report also amended the anti-abuse measures which includes the following:

  • The extension of the anti-abuse measure for share buy-backs so that any buy-back of shares from a shareholder by a listed company, on or after 5 July 2019, will be subject to additional income tax at the rate of 20% of the distributed income on account of the buy-back, as well as corresponding amendments to extend the exemption for shareholders for the income received on account of the buy-back of shares on which additional income tax has been paid by the company;
  • The relaxation of the conditions for the special tax regime for offshore funds with effect from 1 April 2019 to provide that:
  • the corpus of the fund shall not be less than INR 1 billion at the end of a period of six months from the end of the month of its establishment or incorporation or at the end of such previous year, whichever is later; and
  • the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed.

Next steps

The provisions of the Bill will not become law until these are approved by both houses of the Indian Parliament and receive the assent of the President of India. Once approved, the provisions will apply for the 2019/20 Indian fiscal year (1 April 2019 to 31 March 2020).

Source: Government of India

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