Accounting, tax, HR and payroll professionals must prepare for the implementation of India's comprehensive tax changes under the 2019 Union Budget.
The Union Budget of India, 20191, was presented on 5 July and included significant changes to tax rules to support a growing economy. Accounting and tax professionals, and those managing HR and payroll, must prepare to ensure a smooth implementation of the changes. The full budget is wide-ranging but the main changes affecting businesses are summarised as follows.
As a boost for larger domestic companies, the upper threshold for the basic 25% tax rate has risen from INR2.5bn to INR4bn. Fewer than 1% of domestic companies will now pay higher rates.
The government has identified the use of share buy-backs to avoid paying taxable dividends. To mitigate this, a 20% tax levy on unlisted company share buy-backs has now been extended to cover listed companies.
Goods and Services Tax (GST) and other indirect tax
There are many changes to the detail of GST, including:
- certain classes of supplier must facilitate electronic payment from customers
- companies can now transfer a surplus from one tax category to another tax category in the central electronic cash ledger, including between Union taxes and State taxes
- the central government is now able to refund State as well as Union taxes, improving efficiency and speed of processing
- businesses with turnover less than INR50m can now submit quarterly returns
- creation of the National Appellate Authority to facilitate advance ruling under GST
- imposition of a 10% penalty on profiteered amounts not paid within 30 days after an order to pay by the Anti-profiteering Authority.
Additionally, the 'Sabka Vishwas (Legacy Dispute resolution) scheme' has been established: a resolution cum amnesty scheme introduced to clear and settle the enormous overload of pending litigations under excise and service tax laws.
The Permanent Account Number (PAN) issued to individuals by the Indian Income Tax Department is now to be used interchangeably with the Aadhaar unique identity number issued by the Unique Identification Authority of India. Either can now be used on any documents, including tax filings, and large financial transactions that require an identification number. If the individual has not formally linked their Aadhaar to their PAN by 1 September 2019 they will have their PAN card made inoperative.
For high earning individuals earning over INR20m, the tax surcharge is increased from 15% to 25%, and up to 37% on earnings above INR50m.
A tax incentive has been introduced to promote the purchase of electric vehicles, with an income tax deduction of up to INR150,000 on loans taken out to purchase the vehicle. There is a similar tax incentive for first time house buyers purchasing affordable housing.
A tax loophole has been closed, with the gifting of money or property by a resident of India to a non-resident now being included as income.
In one of several initiatives to improve overall efficiency and reduce processing times related to tax, the reporting and determination of withholding tax is now to be fully automated.
There is good news for fund managers of offshore funds, with a relaxation of some of the conditions affecting their special taxation regime. In a bid to kick-start the industry, effective 1 April 2019, remuneration for fund managers is no longer required to be taken at arm's-length and the calculation of average fund value has been relaxed, although it must not be less than INR1bn.
Incentives for start-ups
Provisions governing carry forward and set-off of prior year losses for eligible closely held start-ups have been relaxed, removing the seven-year limit and allowing set-off even where the main shareholder holds up to 51% of the shares.
Since 2017, shareholders holding more than 50% of start-up company's shares were able to transfer residential property into a start-up business as a means of subscribing for shares, avoiding capital gains. This provision was due to expire 31 March 2019 but has now been extended a further two years. The shareholding condition has also been relaxed to now be set at 25%.
The period for the transfer of computer equipment and computer software assets has been reduced from five to three years.
The complete budget announcement is lengthy and complex. Accounting and tax professionals need to review the full set of new and amended provisions and assess how their business can benefit from the changes and the actions that need to be taken to implement the changes. They also need to involve HR and payroll teams to ensure that tax and incentive changes are properly reflected. This will necessarily put additional strain on a company's personnel so they should consider seeking professional help from local experts.
Talk to us
TMF Group can help you implement policies and procedures relating to the Union Budget 2019 and throughout the accounting, tax, HR and payroll functions. TMF India has a team of experts ready to help, and we can also help your company with corporate secretarial and regulatory business issues. Want to know more about our services? Talk to us.
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