Ashok Maheshwary & Associates LLP (New Delhi) Issues 2020 Indian Union Budget Synopsis

Published on February 03, 2020

The Union Budget 2020, that is considered one of the most significant budgets in recent times, has come in the backdrop of a tepid global growth, slowing Indian economy and low business and consumer sentiment. The expectations were high considering we had a substantial reduction in tax rates recently.

The FM rose to the occasion and has taken several important steps - the Budget is based on 3 pillars, Aspirational India, Economic Development, Caring Society and provides necessary impetus to several key sectors/areas like Agriculture, Rural development, Infrastructure, Power sector, Healthcare, etc. Even though the fiscal deficit has widened, the focus seems to be on the right areas.

On the direct tax front, there have been several changes. Individual taxpayers have been given two different regimes. One under the already existing provisions and the new one without certain exemptions and deductions like HRA, Chapter VIA deduction, and so on. Depending on the individual situation, one would need to see which regime would be beneficial, but it could be safely said that the impact would be minimal for people who take do invest and avail various tax deductions. A significant change on personal tax has been taxing stateless Non-Resident Indians (‘NRIs’) by deeming them residents in India.

On the corporate tax front, the most significant change has been shifting the taxation from the Company distributing dividend to the shareholders. This is a big change and will benefit smaller resident shareholders which will get benefit of lower slab rates. The biggest class of beneficiaries would be foreign shareholders who would be able to get benefit of treaty tax rates and also a credit of that in the home country.
Startups have also got further boost by extending the tax holiday to 7 years and the increase in the revenue threshold from existing Rs. 25 crores to Rs. 100 crores. Startup employees will be able to defer their tax liability on exercising Employee Stock Options ESOPs for 5 years or sale of ESOPs or leaving employment whichever is earlier.

For international companies, apart from abolition of DDT, relaxation in filing of tax return in case of income from Fees for Technical Services (‘FTS’) or royalty where no further taxes are due, extending safe harbor provisions and APA to attribution of profits to PE are welcome provisions.

The Budget also has taken anti-abuse measures/widening of tax base namely, bringing TDS provisions on merchants, service providers on E-commerce platforms, TDS on Liberalized Remittance Scheme (‘LRS’) and penalizing generation of fake invoices under GST. The budget has taken some measures for improving the experience of taxpayers by bringing in e-appeals scheme for taxpayers and also codifying the Taxpayer’s Charter in the Act.

As a revenue mobilization measure, Direct Tax dispute resolution has been brought in by giving an option to pay any disputed taxes without any interest and penalties.

Overall, the Budget has brought in several amendments and quite a few of them have been in line with the Direct Tax Code task force recommendations. With the removal of DDT, the effective tax rate for foreign investors has come down and the Indian corporate tax regime has truly become very competitive. This will help India to continue attracting significant amount of Foreign Direct Investment and propel the economy to USD 5 trillion by 2025.

Please click here to view a summary of key proposals for your consideration.