NRIs to shell out more tax after Budget 2018
Riding on the spree of the structural reforms such as the goods and services tax implementation, IBC ecosystem demonetization, massive bank recapitalization program and the on-track growth rate, Union Budget 2018 becomes the last full budget before the next general elections.
The Budget 2018 brings with it cheer to the MSME sector in the form of reduced corporate tax rate of only 25% for the companies with total turnover up to Rs 250 Cr in Financial Year 2016-17.
Furthermore, to make the 100% tax holiday for start-ups more efficiently or effectively, the budget proposes to actually expand the scope of the eligible business to include the scalable business model while having higher potential of the employment generation as well as the wealth creation against the recent restriction to business being driven by the technology or intellectual property.
Companies under distress, relieved
Budget 2018 has certainly bought smile to the rehabilitating organizations under IBC by proposing that which is unlike the other organizations which can actually be set lower of past losses as well as unabsorbed depreciation for the computation of book profit subjects to MAT.
The organizations under IBC can set-off both, the past losses as well as unabsorbed depreciation. Furthermore, such organizations, change in the shareholding wouldn’t result in the lapse of the past tax losses which basically are otherwise cased where there is a change in the shareholding beyond 49%.
Complete tax neutrality to transfers inter parent & wholly owned subsidiary
Presently, the tax neutrality for transfers is available to the transfer or the organization and not transferee/ recipient organization which is required to pay the tax based on the fair value of the assets received.
These impacts adversely on the internal group restructurings. In a welcome move, Budget 2018 proposes to exempt the recipient from tax as well.
The biggest talking points in relation to the budget 2018 in the introduction of 10% long-term capital gains tax for the no market transfers of the listed securities for the gains in excess to Rs 1 lakh.
Provided that the buoyant stock markets, this move certainly seems fair from the perspective of government which will certainly bring important gains made by the investors in the tax net. Irrespective, this may upset domestic and foreign investors in the short run.
Non-resident- the scope of taxable presence widened
When it comes to taxing the digital economy, India has been front-runner by introducing the equalization levy. Taking a step further in this direction, Budget 2018 has certainly widened the scope of the taxable presence of the non-residents by moving the physical presence dominated nexus approaching the significant economic presence nexus approach.
This approach will definitely be more effective if only the tax treaties gear up for similar business models, else, the taxpayers will take shelter under more favorable tax treaty in comparison to the domestic law.
What the budget did miss
Provided that India has a huge appetite for the quality infrastructure, Budget 2018 has not really extended nay rationalization for infrastructure sector like relaxation from newly introduced thin capitalization rules which restrict the deduction of the interest expense to borrow in specific cases.
Also, there is no relief for the fund industry which was actually expecting some rationalization.
Similarly, dividend distribution tax regime should have been replaced with the dividend withholding the tax regime to make sure seamless credit of such tax to investors which aren’t available in the present regime.