Reduced corporate tax rate of 25% for companies has now been extended for turnover upto Rs. 250 crore.
Union Budget 2018 being the last full budget of the current government, kept its focus on agriculture and rural economy, good healthcare to economically weaker section, care of senior citizens, infrastructure creation and better quality of education. With rise in the manufacturing sector together with the consistent performance of service sector, government estimates India to grow at a healthy rate of more than 8%.
The FM highlighted the use of technology for delivering on government projects and increasing the compliance efficiency. To further increase the efficiencies and effective delivery, the government plans to further invest in AI, data analytics, use of robotics and internet of things by doubling its allocation on the Digital India programme.
The reduced corporate tax rate of 25% for companies has now been extended for turnover upto Rs. 250 crore. The government has clarified on the threshold requirement for claiming additional deduction of 30% for wages paid to new employees and employers now, would get additional deduction even if the threshold requirement of 240/ 150 days has not been fulfilled in the first year of employment but has been fulfilled the subsequent year. This will benefit the technology and e-commerce sector and encourage new entrepreneurial activity. However, the rate of education cess has been increased from 3% to 4% leading to additional tax outflow.
To foster the startup culture in India, government provides profit linked deduction. Such deduction has now been extended to startups engaged in innovation, development or improvement of products etc. with a high potential of employment generation or wealth creation. The deduction is now also eligible for start-ups which are incorporated upto 31 March, 2021. However, in order to claim such deduction or any other deduction under Chapter VIA – C of the Act, the assesse is now required to file their return of income by the due date.
The Finance Minister in his speech emphasised on reduction of interface between the department and the taxpayers through e-assessment. The government now proposes to revamp the assessment under income-tax laws by introducing a new e-assessment scheme which proposes to bring in greater efficiency, transparency and accountability.
To reduce the litigation around applicability of principles of ICDS vis-à-vis the existing judicial principles, the government has brought in a number of amendments in this budget. For service industry, the government has specifically brought in Section 43CB which is in line with the existing provisions in the ICDS.
With the growth of digital presence, physical presence is now effectively replaced by virtual presence. The government now proposes to deem certain transactions undertaken by non-residents (irrespective of the residence or place of business in India) to be taxable in India. This includes transaction in goods, services or property including provision of download of data or software in India over a prescribed amount, systematic and continuous soliciting of business activities through digital means, engagement or interaction with prescribed number of users in India. The above proposal would be subject to the existing tax treaties which India has already entered. However, the government proposes to use this proposal to re-negotiate existing tax treaties.
There were expectations of government further incentivising spending on R&D but there were no major proposals in the Finance Bill to encourage R&D activities.
On the indirect tax front, FM had no major GST related announcements. While the Budget speech did emphasise on ‘ease of doing business in India’, simplification measures on GST compliances did not find a mention. This was one of the key expectations of the industry which is presently experiencing decentralised / voluminous compliances across India in the GST regime.
Centralised assessments was another key ask which was a miss. It is expected that the upcoming GST council meetings will provide resolutions on these including matters such as extension of IGST exemption granted to STP units in relation to imports, taxability of transactions between head office and overseas branch offices or vice versa, clarity on transition of cess balances which could save the industry from ensuing litigation. Ecommerce companies were expecting announcements with regard to relaxation on Tax collected at source (TCS) provisions under the GST. However, this continues to remain unresolved.
Several amendments in the form of increase in Custom duty rates for certain electronic / hardware products like LCD/ LED/ OLED/ Smart watches, mobile phones, printed circuit boards were made to incentivise the domestic value addition and promote ‘Make in India’ agenda of the Government.
