The Finance Minister presented the Finance Bill, 2020 in the Lok Sabha on 1 February 2020, accompanied by the longest ever budget speech. On an overall basis, the government’s focus appeared to provide ease of living and to promote investments in to India. Accordingly, the entire Budget was woven around three prominent themes of Aspirational India, Economic development and Caring society.
Given the recent reduction in the tax rates provided by Taxation Law (Amendment) Act, 2019 to corporate taxpayers, it was expected that the government would turn its attention to exemption of long term capital gains tax, extension of the sunset clause for exemption in case of Special Economic Zone (SEZ) units and abolition of dividend distribution tax for attracting investments into India. While there were no announcements for exempting long term capital gains arising on transfer of listed securities and SEZ units, the Budget has proposed certain welcome changes for corporate taxpayers including abolition of dividend distribution tax. The key changes proposed are briefly discussed below:
Currently, companies are required to pay DDT on the dividend paid to shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits. In order to increase the attractiveness of the Indian Equity Market, it is proposed to remove the DDT. The dividend income would be taxable in the hands of the shareholders. This is a paradigm shift in the taxing provisions relating to dividend.
The deductions that are permissible from such dividend income are as under:
Further, withholding tax provisions shall also apply.
The Finance Minister acknowledged that start-ups have emerged as engines of growth for our economy.
Currently, eligible start-ups with turnover of up to INR 25 crores are allowed deduction of 100% of profits for 3 consecutive assessment years, out of 7 years. In order to extend this benefit to larger start-ups, it is proposed to increase the turnover limit to INR 100 crores. Also, considering the fact that in the initial years, a start-up may not have adequate profit to avail this deduction, the period of eligibility for claim of deduction is proposed to be increased from the existing 7 years to 10 years.
Currently, consideration received for sale, distribution or exhibition of cinematographic films is not considered as royalty and accordingly not taxable in case of a foreign company. Further, withholding tax is not applicable on such income in case of Indian residents. To align the definition of royalty with tax treaties, it is proposed to omit the said exclusion from the definition of royalty.
The applicability of SEP has been deferred to Assessment Year 2022-23, as the government has not prescribed thresholds, pending the G20 OECD reports. Further, the scope of SEP has been proposed to be expanded to cover systematic and continuous soliciting of business or engaging with such number of users as may be prescribed. The reference to ‘digital means’ in the current provision has been deleted.
It is proposed to expand the scope of income from business connection to include the income from advertisement that targets Indian customers, or income from sale of data collected from India or income from sale of goods and services using such data collected from India.
Currently, non-residents receiving certain interest and dividend income are not required to file tax return in India. It is proposed to extend such exemptions to foreign entities earning income in the nature of royalty or fees for technical services return if tax has been deducted on gross basis under the provisions of the Income Tax Act, 1961 (‘the Act’).
− adopt and declare a taxpayer’s charter; and
− issue such orders, instructions, directions, or guidelines to other income-tax authorities, as it may deem fit for the administration of the charter.
The Budget was a mixed bag of proposals for corporate taxpayers, wherein certain welcome moves such as abolition of DDT, rationalisation of tax holiday for startups, relaxation in return filing, announcement of new dispute resolution scheme to reduce litigation, etc. were announced. There was some disappointment on no extension of the SEZ sunset clause and expansion of the scope of business connection.
 Expected in December 2020
 under section 115A of the Act
 exceeding INR 50 Lacs (qua buyer) in a financial year
(Author Deepa Bakhru is Senior Manager with Deloitte Haskins and Sells LLP)