Union Budget 2019 India: The effective tax rate of 39 per cent and 42.74 per cent would be applicable for an individual/HUF/ AOP/BOI taxpayer in cases where the income is more than Rs 2 crore but up to Rs 5 crore and above Rs 5 crore respectively.
by Prashant Kapoor
Budget 2019 India: The maiden Budget of the newly elected government as presented by the Finance Minister aims at widening the tax base while ensuring simplified tax administration, anti–abuse measures, incentivising common man, encouraging start-ups and promoting digital economy. The various tax proposals are futuristic in nature and have a far reaching impact.
The effective tax rate of 39 per cent and 42.74 per cent would be applicable for an individual/HUF/ AOP/BOI taxpayer in cases where the income is more than Rs 2 crore but up to Rs 5 crore and above Rs 5 crore respectively. With this, the government has clarified that a high income earner will have to pay more tax for the development of the economy. The maximum marginal tax rate in India is now in parity with many developed countries including Germany, China, the UK and Japan.
Aadhaar and PAN are now interchangeable– this would enable filing of an Income Tax Return (ITR) through Aadhaar, as well. The filing of ITR is also made mandatory for assessees who deposit more than Rs 1 crore in a current account in a year, spends more than Rs 2 lakh for foreign travel or incurs more than Rs 1 crore towards electricity bills. This provision would ensure that a person below the tax threshold would be bound to file return of income.
Pre-filled tax returns to be made available and will contain details of salary, capital gains, interest, etc. This is likely to significantly reduce the time taken to file a return of income by taxpayers and may also ensure accuracy. This would also provide a greater access to the tax department to enforce legitimate tax payments. To ensure ease of doing business, faceless assessment has been proposed wherein there will be no human interference while scrutinising the tax returns. This is in line with removing difficulties faced by genuine taxpayers.
The budget also proposes various measures for a common man. For the first time, interest paid on loan towards electric vehicle would be tax deductible up to Rs 1.5 lakh per annum. This proposal is in line with the government agenda of moving towards environment friendly modes of transport. Homebuyers would get an additional interest deduction of Rs 1.5 lakh per annum on purchase of residential house valued upto Rs 45 lakh. Tax exemption on withdrawal of NPS at the time of closure increased from 40 per cent to 60 per cent.
Reduced tax rate at 25 per cent have been now extended to companies having turnover below Rs 400 crore (earlier it was Rs 250 crore) in FY 17-18. As per the finance minister, 99.3 per cent of the companies would now come under the ambit of reduced taxation.
The government has extended provisions for tax on buyback to listed companies while exempting such income in the hands of shareholders. This will have a huge impact on the profits of companies with active buyback programmes. However, buyback may still continue to be more tax friendly as compared to dividend distribution for listed companies since there is no additional tax in the hands of the shareholder on the distributed income unlike in case of dividend distribution. Further, proposals for taxation on gifts by an Indian to non-relatives abroad, TDS on contract work by individuals/HUF for personal purposes exceeding value of Rs 50 lakh in a year and increased ambit of TDS on property transaction have been introduced.
Significant emphasis has been provided to resolve the angel tax issue and reduce scrutiny on start-ups. The provisions for carry forward and set off of losses for a start-up have been relaxed and roll-over benefits for capital gains on transfer of residential property for investment in start-ups have been further extended. The new measures should ensure growth of start-ups by removal of difficulties being presently faced by them.
Proposals for absorption of merchant discount rates by banks and the Reserve Bank of India, mandatory adoption of digital payments by all corporates having a turnover exceeding Rs 50 crore, applicability of withholding tax at 2 per cent on withdrawals from a single bank account in excess of Rs 1 crore in a year have been given which will ensure push to digital infrastructure and reduced transactions in cash.
The incentives proposed for International Financial Services Centre (IFSC) provides an impetus to investor confidence and could result in development of financial structures in India.
These measures are limited in number but presented a far sighted and comprehensive approach of the government with initiatives such as measures for promoting cashless economy, Ease of Doing Business, ’Make in India’, reducing tax administration, widening tax base and emphasis on digital economy which is certainly attractive from an investor perspective but the manner of implementation would determine the real success of these proposals.
(The author is Partner M&A Tax, KPMG in India and Ravi Wadhawan, Associate Director, M&A Tax, KPMG in India)