As we begin the run-up to the India Union Budget 2020, we are pleased to present a snippet of expectations from this year's announcements in our Pre Budget feature: Countdown to The Budget 2020
For some time now, India's economy has been facing challenges from various quarters. In order to boost the economy and provide impetus to the Government's Make in India initiative, the corporate tax rate for manufacturing and other companies was reduced to 15 and 22 percent respectively, subject to fulfilment of prescribed conditions. While this move has been welcomed by many quarters, many more measures are expected from the Indian Government to revive the economy.
In the current scenario, a populist budget is expected. While there will be many direct tax related amendments, it is expected that the Hon'ble Finance Minister will announce various policy measures as well, with an aim to boost the economy. Owing to the Goods and Services Tax amendments being undertaken only through council meetings, the Budget is now narrowed to direct tax and foreign exchange front. We present some key expectations from the Union Budget 2020, here:
- Abolishment of Dividend Distribution Tax (DDT): With dividend being taxed at various points of time both at corporate and investors level, it is expected that the Indian Government may do away with DDT and treat the entire amount as taxable in the hands of investors.
- Extending Special Economic Zone (SEZ) tax holiday benefit: The extant period for claiming the SEZ tax holiday benefit is expiring on 31 March 2020. However, in order to provide a booster to exporters, it is expected that the said benefit may be extended with altered conditions for claiming such benefit.
- Concessional tax withholding rate under section 194LC of the IT Act: It is expected that the period of entering into loan agreement (for claiming concessional tax withholding rate of 05 percent) will be extended by few years and made applicable to specified cases.
- Safe Harbour Rules: In order to bring tax certainty and considering the present economic situation, it is expected that the Government may reintroduce / extend Safe Harbour rules for few more years along with rationalised threshold of expected margins for specified cases / sectors.
- Dispute Resolution Scheme: For speedy disposal of pending appeals, it is expected that a dispute resolution scheme may be framed.
- Carry back of losses: With an aim to provide impetus to businesses which are presently incurring losses, a new provision to carry back losses upto specified preceding period, subject to fulfilment of prescribed conditions, may be introduced.
- Further liberalisation of External Commercial Borrowing (ECB): The Reserve Bank of India has recently opened up the availment of ECB for various corporate sectors. However, Limited Liability Partnerships, which are rapidly being used as a business vehicle, are not permitted to raise ECB. Relaxing this could bring an impetus to foreign capital in India.
Though the above are some key expectations, the Hon'ble Finance Minister would also examine the sources of tax collections and provide growth impetus for the economy.
We will be analysing the budget proposals as they are announced on 01 February 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.