Budget 2019: Exemptions provided to stressed firms would remove several pain points, explain experts

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Published: July 6, 2019 4:38:30 AM

Budget 2019: The Budget said that any buyback of shares from a shareholder by a company listed on recognised stock exchange, on or after July 5 2019, will also be covered by the provision of Section 115QA of the Income-Tax Act.

 Union Budget 2019 IndiaThe Budget has also extended the anti-abuse provision to listed firms mandating a 20% tax on share buy-back. This provision till now was applicable only to privately-held firms.

Union Budget 2019 India: Corporate India’s hope for a blanket cut on corporate tax rate to 25% didn’t materialise in the Budget but it extended the reduced rate, hitherto restricted to firms with turnover up to `250 crore, to companies with annual turnover of up to `400 crore. This leaves only 0.7% of the firms under the marginal tax rate. Additionally, the Budget has proposed to exempt companies that buy firms undergoing insolvency proceedings from tax on difference between fair market value and actual sale value.

“The large companies which have a great contribution to the overall economy and they are still taxed at the higher rate of 30%,” Sudhir Kapadia, national tax leader, EY India said.

However, experts said the exemptions provided to stressed firms would remove several pain points. Daksha Baxi, head – international taxation, Cyril Amarchand Mangaldas, said: “The losses of the company would be allowed to be carried forward despite change in shareholding of more than 49% albeit with conditions; the transaction would be exempt from Section 56(2)(x) and 50CA anti-abuse provisions upon CBDT notifying the conditions, the deduction of brought forward losses for MAT would be permitted. All in all, several beneficial provisions.”

The Budget has also extended the anti-abuse provision to listed firms mandating a 20% tax on share buy-back. This provision till now was applicable only to privately-held firms. The Budget said that any buyback of shares from a shareholder by a company listed on recognised stock exchange, on or after July 5 2019, will also be covered by the provision of Section 115QA of the Income-Tax Act.

Mehul Bheda, partner at Dhruva Advisors, said: “While buyback tax has been introduced in listed companies to curb the tax arbitrage available vis-à-vis dividend distribution tax, there is still some savings on buyback as the 10% tax on dividend received by individual shareholders (non-corporates) is still not applicable. However, the arbitrage is small and there are several other risks and costs associated with buyback; hence the amendment should be effective in curbing the abuse of the buyback provisions”

As FE had reported earlier, the government will now extend investment linked income-tax exemptions under Section 35 (AD), which allows deduction of capital expenditure in setting up specified facilities, for global companies to set up mega-manufacturing plants in semi-conductor fabrication, solar photo voltaic cells, lithium storage batteries, solar electric charging infrastructure, computer servers and laptops among others.

GIFT City’s International Financial Services Centre will also get 100% profit-linked deduction under Section 80-LA in any 10-year block within a 15-year period.

Do you know What is Finance Bill, Short Term Capital Gains Tax, Fiscal Policy in India, Section 80C of Income Tax Act 1961, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

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