Taxation on businesses
1) Introduction of a New withholding tax of 0.1%, on transactions for the sale of goods whose value exceeds 5 million rupees (57,000 euros). These provisions are applicable only if the seller's turnover in the immediately preceding year does not exceed 100 million rupees (1.15 million euros). In addition, If the Permanent Account Number (PAN) is not provided by the purchaser, the tax will go up to 5%. These provisions will be effective July 1, 2021.
2) Higher withholding tax rate for those who do not file tax returns. The rate must be higher than twice the rate specified by law or, if not specified, 5%. The penalty is aimed at any company that has failed to file a tax return for the two years prior to the reporting year, and for which the deadline for filing the return has passed. For the penalty to take notice, the total withholding tax must exceed 50,000 rupees (575 euros). Effective July 1, 2021 and applicable from fiscal year 2021-22 onward.
3) In order to incentivize electronic transactions to promote the digital economy, it is proposed to make tax auditing mandatory by increasing the existing threshold from 50 million rupees to 10 million rupees (from 575,000 million to 1.15 million). Effective April 1, 2021 and applicable from fiscal year 2020-21.
4) Untaxed business income for start-ups Which were established on or after April 1, 2016 but before April 1, 2021. In addition, the exemption is also granted to all long-term capital gains from the transfer of residential property before March 31, 2021, provided that the net income from such transfer is used to subscribe for shares in an eligible start-up. In order to assist such start-ups, it was decided to postpone the maximum deadline for incorporation to March 31, 2022.
5) Goodwill amortization not allowed: the scope of intangible assets excludes goodwill for amortization purposes was amended to exclude goodwill from its scope. So, amortization will not be allowable on either internal or acquired goodwill. For the purpose of calculating capital gains, the acquisition cost will be the actual purchase price; it will be zero in the case of internal goodwill.
6) Delayed payment of contributions to employee benefit funds results in a permanent disallowance of the deduction. An employer is required to deduct a certain amount from employees' salaries to their social security funds. If the same is not remitted to the respective fund by the due date, this amount will not be deductible. Effective April 1, 2021 and applicable from the 2020-21 tax year onward.
International taxation
1) It is now clarified that Taxation as a royalty or technical service fee under the Income Tax Act has priority over the Equalisation Levy. The Equalisation Levy is a tax on the digital activities of foreign firms that do not have a significant physical presence in India. To be considered as selling goods online and providing services online, one or more of the following activities must be undertaken online:
- Acceptance of the offer of sale;
- purchase order entry;
- acceptance of the purchase order;
- payment of consideration or
- Supply of goods or provision of services, partially or wholly.
A transaction that is subject to compensatory levy (Equalisation Levy) will then be exempt from this tax as of April 1, 2020.
2) Minimum Alternate Tax (MAT) Provisions.: MAT or Minimum Alternate Tax is a provision in direct tax laws to limit the tax exemptions companies take advantage of, so that they compulsorily pay a minimum amount of taxes to the government. Under the current regime, MAT is applicable at the rate of 15% on a company's profit, and in case the accounting profit increases the MAT assessment office recomputes the profit and the tax payable. For this to happen, the taxpayer will have to file an application with the assessing office. The regulations will take effect on April 1, 2021, and will be applicable from the 2021-22 tax year onward.
3) For bureaucracy for small companies, those companies with a paid-up capital of up to 20 million rupees were considered as small companies (230,000 euros); And a turnover of a maximum of 200 million rupees (2.3 million).
4) To encourage start-ups, it was decided that One-Person Companies. (OPCs, single-member companies) No longer have restrictions on paid-up capital and turnover. In addition, conversion to other types of companies is allowed at any time; finally, the residency limit for an Indian citizen to establish an OPC has been reduced from 182 days to 120 days.
The Rupee/Euro exchange rate used for this article is current as of February 16, 2021.
The new withholding tax at the source of 0.1% applies to sales transactions of goods worth more than 5 million rupees, about 57,000 euros. It only applies if the seller’s turnover in the previous year does not exceed 100 million rupees. If the buyer does not provide the PAN, the rate rises to 5%. It is effective from July 1, 2021.
Companies that have not filed their income tax returns in the two previous years, even though the deadline has expired, are subject to the highest withholding tax rate. The rate must be equal to twice the amount stipulated by law, or, if not specified, 5%. The penalty kicks in if the withholding taxes exceed 50,000 rupees, about 575 euros, as of July 1, 2021.
Start-ups formed from April 1, 2016, and before April 1, 2021, have non-taxed business income. The exemption also applies to long-term capital gains from the transfer of residential real estate before March 31, 2021, if the net proceeds are used to subscribe for shares in an eligible start-up. The deadline for formation has been postponed to March 31, 2022.
No, amortization of start-up capital is no longer permitted, because intangible assets that are eligible for amortization now exclude it. The prohibition applies to both internal start-up capital and purchased start-up capital. To calculate capital gains, the acquisition cost corresponds to the actual purchase price, while it is null in the case of internal start-up capital.
The Equalisation Levy is a tax on the digital activities of foreign companies without a significant physical presence in India. The Budget clarifies that taxation as royalties or fees for technical services takes priority. A transaction subject to the Equalisation Levy is therefore exempt from this tax, starting April 1, 2020.
Small companies are those with paid capital of up to 20 million rupees, about 230,000 euros, and a maximum turnover of 200 million rupees, about 2.3 million euros. One-Person Companies no longer have capital and turnover limits; they can convert into other companies at any time and require 120 days of residence instead of 182.
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