Budget 2019 India: FM spoke of resolving the ‘angel tax’ issue. These proposals, though spoken about extensively in the Budget, do not reflect in the fine print
Union Budget 2019 India: As acknowledged by the finance minister, the Union Budget 2019 was presented on the back of an unprecedent large mandate granted by the Indian electorate. The expectation was for announcement of big reforms leading to employment generation and growth of the economy. The FM set the tone by announcing that the economy was on course to be a $3 trillion economy this year and $5 trillion economy in a few years.
The FM made some significant announcements relating to the Foreign Direct Investment (FDI) regime, including a proposal to consider relaxation of FDI in sectors such as aviation, media and insurance. There was a clear thrust on moving towards a cashless economy.
From a tax perspective, while the headline income-tax rates and the slabs for individuals are proposed to be retained, high net-worth individuals earning more than Rs 5 crore will now have to pay a tax in excess of 42% in light of a proposed increased surcharge of 37%. While progressive taxation is one way to tax varying income-groups, especially in a country like India, the rate of 42.74% is exceptionally high and comparable to countries like Belgium and Germany. This rate of tax coupled with changes like bringing in LTCG (for shares sold on the stock exchange) and dividend tax on dividends of more than Rs 10 lakh per annum brought in the last couple of years will lead to significant changes in the cash tax outflows for high net-worth individuals.
The Union Budget also focussed on measures for promoting a cashless economy to reduce generation/circulation of black money. Furnishing of returns by individuals have been made mandatory under certain circumstances even in absence of taxable income. Further, banks will now have to deduct a tax of 2% on cash withdrawals exceeding `1 crore per annum. This will lead to greater compliance and disclosures by taxpayers.
For companies, the tax rate of 25% has now been extended to companies with turnover or gross receipts of upto Rs 400 crore in FY18. Faceless e-assessments will also be launched [in phases]. Further, much-needed clarity has also been provided in the context of disallowances for non-deduction of taxes on payments to non-residents and no disallowance would be required if the non-resident recipient has offered such income to tax while furnishing return of income.
Measures have also been proposed to boost the Make-in-India initiative by providing investment linked income-tax deductions. Further significant benefits have been proposed to IFSCs to promote development of world-class financial infrastructure in India. The finance minister spoke of resolving the ‘angel tax’ issue with the ultimate objective that start-ups will not be subjected to scrutiny in respect of valuations. These proposals, though spoken about extensively in the Budget, do not reflect in the fine print and would possibly be brought in by way of administrative measures.
For corporates facing transfer pricing disputes leading to secondary adjustments, it has been clarified that monies shall be repatriated to India by the taxpayer from any of its overseas associated enterprises. In addition to the above, taxpayers shall have the option of paying a one-time additional income-tax of 18% on the primary adjustment or part thereof that was not repatriated from the affiliates within the prescribed time frame. This aligns our laws to the internationally followed practice.
From a GST perspective, the National Appellate Authority has been introduced which will apply in situations where conflicting advance rulings are given by appellate authorities of two or more states. A Legacy Dispute Resolution Scheme has also been introduced which will facilitate quick closure of all past disputes, prior to the introduction of GST.
The key to sustaining the reforms proposed and notable growth and development plans will be revenue mobilisation.
The author is Partner, Dhruva Advisors LLP