India Tax & Business Reforms 2019 – Impact On Businesses, Residents & Non Residents

India Tax & Business Reforms 2019 – Impact On Corporates, Businesses, Foreign Companies, FDIs, GST, Individuals, NRIs, Non-Residents.

Recently, the Finance Minister of Govt of India and GST Council of India have announced some major economy boosters to revive India Economy and attract Foreign Investment in India into Manufacturing and other sectors. In this article, you will know India Tax & Business Reforms 2019 impact on Corporates, Businesses, Foreign Companies, FDIs, GST, Individuals, NRIs, Non-Residents.

Some of the major announcements made recently are:

Hereunder, is a brief analysis and summary report of all these proposals, prepared by CA S Lohia & Associates team:

Corporate Tax Reforms – Announced On September 20, 2019

Corporate Tax Rates Reduced to 22%:

Income Tax Rates for Domestic Companies reduced to 22% (from present rates of 25%/30% as the case may be). However, under this option no exemption or incentives would be allowed. So, the corporates have to choose one option. Also, under this proposed rate structure, the companies will not have to comply with the Minimum Alternate Tax (MAT) provisions. Surcharge & Cess shall be applicable.

New Corporate Tax Rate @15% – New Manufacturing Companies:

FM proposed a new reduced income tax rate @15% on new companies incorporated on or after October 1, 2019. Condition is that the new companies shall be manufacturing companies and they will have to start their production before March 21, 2023. Also, under this tax rates, no benefit of any exemption or incentive will be allowed. MAT provisions will also not be applicable on these companies.

Minimum Alternate Tax (MAT) Rates Reduced to 15% from 18.50%:

MAT is reduced to 15% from 18.50%. It will give benefit to all those companies who are even not option for reduced income tax rates as explained above.

Tax on Buy Back of Shares By Listed Company – Not Applicable:

Govt allowed relief wrt tax implemented on buy back of shares of listed companies if the company has made a public announcement of such buy-back before 5th July 2019.

Removal of Enhanced Surcharge  (37%/25%) – On Capital Gains on Securities Sale By FPIs:

Govt has taken back its budget 2019 proposal wrt increase of surcharge (@37%/25% as per the Income Structure) in relation to capital gain income on sale of securities, derivatives. The reversal of surcharge will be effective in relation to Foreign Portfolio Investors (FPIs). This will give relief to FPIs, NRIs/PIOs investing through FPIs etc.

Removal of Enhanced Surcharge  (37%/25%)  – Super Rich Individuals (including NRIs, PIOs) – On Sale of Shares, EOF etc:

Govt has taken back its budget 2019 proposal wrt increase of surcharge (@37%/25%) on super rich Individuals/HUF (including NRIs, PIOs). This removal of surcharge will be applicable only in relation to their Capital Gains income arising on sale of equity shares in a company, equity-oriented fund, unit of a business trust liable for Securities Transaction Tax (‘STT’).

2% CSR Spending Scope Extended To PSU Incubator, IITs etc:

In this economy booser, another step is taken by Govt to extend the scope of Corporate Social Responsibility Expense scope. Now, CSR spending can also be done towards Incubators (funded by Central/State Govt/PSU), Contribution to Universities (Public Funded), National Laboratories, Certain Autonomous Bodies conducting research in science, technology etc.

Brief Analysis – On Proposed Corporate Tax Rates:

Companies, availing various deductions/exemptions, may continue to pay taxes as per the earlier rates. After the expiry of exemption/deduction period, those companies can opt for the new rates of 22%. For the purposes of computation of 15%/22% no deduction shall be allowed. Also, carried forward losses shall not be allowed to the extent they attribute to deductions. Impact of above tax cut would impact a total revenue forgo to Govt of India for Rs 1.45 Lakh crore per year. Above changes will have an impact on Non-Residents also (including NRI, PIO) who are doing investment in share markets through FPIs or who is super rich category. Share market has responded very positively, with big Sensex one day gain, on above changes.

Corporate Tax Cut – Impact On India – World Trade War:

With this Tax Rates Cut, India will be benefitted significantly. Now, in Asian market India will be a choicest destination for Investors. After this Rates Cut announcement, now, India is one of the best destinations. Hereunder is a comparative chart of India Vs Other Countries:

Corporate Tax in Major Asian Countries
Country FDI % of GDP Corporate Tax Remarks
India 1.5% 17%  

 

India Corporate Tax Rates Cut will directly attract US FDI amidst US-China Trade War.
Malaysia 3% 24%
Vietnam 6.3% 20%
Thailand 2.6% 20%
Singapore 22% 17%
Indonesia 1.9% 25%
Japan 0.5% 30.86%
China 1.5% 25%
South Korea 0.9% 22%

Source: World Bank Reports, Other Sources

GST Reforms – GST Council Meeting September 20, 2019

Hotel Tariffs Reduced:

GST Council decided to reduce the GST rates on Hotel Tariffs as under:

  • Hotel Tariffs Rs 7,500 and above GST rate is reduced to 18% (from 28%).
  • Hotel Tariffs Rs 1,000 to 7,500 GST rates is reduced to 12% (from 18%).
  • Hotel Tariffs below Rs. 1,000 GST at Nil rate.

This will give a direct boost to Indian Tourism Industry.

Other GST Rates Cut:

In this meeting, GST Council also reduced GST rates as under:

  • Diamond Job-work GST rate reduced to 1.5% (from 5%).
  • Outside Catering GST rate reduced to 5% (from 18%).
  • Other Job-work GST rate reduced to 12% (from 18%).
  • Semi-precious Stones- Cut & Polished – GST reduced to 0.25% (from 5%).

Other Reliefs & Decision By GST Council:

  • Amendment in Rules regarding Refund by Appellate Authority.
  • Council amended rules wrt GST Practitioners and Consumer Welfare Fund.
  • GST Annual Returns GSTR-9, 9A – Not mandatory (Optional) for those, whose turnover is upto Rs 2cr for FY 17-18 & 18-19.
  • GSTR-9 to be made “Saral”.

Additional Depreciation – Finance Minister Announced On August 24, 2019

Additional Depreciation On Vehicles ie Motor Cars:

Additional 15% Depreciation Rate is allowed on Cars if the cars are purchased during Aug 23, 2019 to March 31, 2020. New Rates are as under:

  • Normal Business/Professional Entities – Earlier Rate was 15%. Now, on this new purchase the rate will be 30%.
  • Car Hiring Business Entities – Earlier Rate was 30%. Now, on the new purchase the rate will be 45%.

In this regard, notification has also been notified dated September 20, 2019.

Foreign Direct Investment (FDI) Proposals – Approval By Union Cabinet – On August 28, 2019

On August 28th 2019, the Union Cabinet, presided by the PM Shri Narendra Modi, approved following proposal in the current FDI policy on various sectors:

Single Brand Retail Trading (SBRT):

Norms wrt local sourcing relaxed. Also, an allowance is given to single brand retailers to operate through e-commerce prior to opening stores in India, which is subject to the condition that the SBRT entity opens brick and mortar stores within 2 years from start of online retail.

Contract Manufacturing:

100% FDI permitted under the automatic route

Presently, 100% FDI allowed in manufacturing but not specifically on Contract Manufacturing. This change will be a big boost to manufacturing sector in India.

Coal Mining:

100% FDI (automatic route) is approved in coal sector for coal mining, activities including associated processing infrastructure.

Digital Media:

The Cabinet approved 26% FDI (under government route) for uploading/ streaming of News & Current Affairs through Digital Media.

Above FDI Policy Liberalisation will attract more FDI to India in these sectors. It will lead to more investments, industry, employment and GDP growth of India.

FM’s Key Tax, Financial Announcements – Economy Booster Aug 23, 2019

On Aug 23, 2019, the honorable Finance Minister of India made various announcements to give a booster to Indian Economy. These announcements include various tax & financial steps to ease the business. Some of the Tax & Financial announcements are:

5.1     Simplification of GST returns

5.2     Focus on monetary penalties more than prosecution.

5.3     CSR Non- not to be treated as Civil Offence against Criminal Offence.

5.4     All Income Tax Notices to be issued from a centralized system.

5.5     Section 56(2B) of IT Act, 1961 shall be not applicable to registered startups.

5.6     Dedicated cell in CBDT to resolve issues related to startup

5.7     Banks to link Repo rates with Interest rates on loan.

5.8     Banks to provide immediate effect of RBI Repo Rate change effect to Working capital loan and Home loan interest rate.

5.9     Bank Documentation after loan repayment to be completed within 15 days.

5.10   Banks to provide online tracking of loan application with status.

5.11   To avoid repetition, NBFC to use Aadhar authenticated KYC.

5.12   Pending GST refunds (to MSMEs) to be paid within 30 days. All New Refunds to be paid in 60 days.

5.13   Indian Bond markets to be deepened.

5.14   Global Markets access to Indian Companies.

5.15   Aadhar based KYC for retail investors.

5.16   Bringing of Offshore Rupee market to Domestic Stock Exchanges

Usefulness Of Above Information – Tax Reforms, Economic Boosters, FDI Liberalisation by Govt of India – August-September 2019 – Impact On Corporates, NRIs, Foreign Investors, Individuals, Retail Investors etc

Above information can be helpful to all sections of Indian Economy in clarifying their doubts such as:

  • What are the post Budget 2019 amendments/revisions in Income Tax Act in India?
  • What are the corporate tax rates in India wef FY 2019-20?
  • What are the tax rates in India if an NRI/Foreign Company wish to invest in India in manufacturing sector?
  • What are the Foreign Direct Investment proposals approved by Govt of India in FY 2019-20?
  • What are the latest attracting point to do investment in India?
  • What are the tax rates changes in capital gains on shares, mutual funds etc?
  • What are the latest GST rates on hotels in India?
  • How muct time GST refund processing takes place?
  • Annual Return Filing of GST?
  • What is the Additional Depreciation benefit on Motor Cars provided by Govt of India recently?