Corporate taxation
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). Furthermore, if the Permanent Account Number (PAN) is not provided by the buyer, the tax will rise to 5%. These provisions will be effective from 1 July 2021.
2) Higher withholding tax rate for those who do not file a tax return. The rate must be higher than twice the rate specified by law or, if not specified, the 5%. The penalty is aimed at any company that has not submitted its tax return for the two years preceding the reference year, and for which the deadline for submitting the declaration has expired. For the penalty to take effect, the total withholding taxes must exceed 50,000 rupees (575 euros). Effective July 1, 2021 and applicable from fiscal year 2021-22 onwards.
3) In order to encourage electronic transactions to promote digital economy, it is proposed to make tax audit mandatory by increasing the existing threshold from Rs 50 million to Rs 10 million (from 575,000 million euros to 1.15 million euros). Effective April 1, 2021 and applicable from fiscal year 2020-21.
4) Untaxed business income for start-ups which were established starting from 1 April 2016 but before 1 April 2021. Furthermore, exemption is also granted to all long-term capital gains arising from the transfer of residential real estate before 31 March 2021, provided that the net income from such transfer is used to subscribe for shares in an eligible start-up. In order to assist these start-ups, it was decided to postpone the deadline for incorporation to 31 March 2022.
5) Goodwill amortization not allowed: Intangible assets scope excludes goodwill for amortization purposes has been changed to exclude goodwill from its scope. Therefore, depreciation will not be admissible on either internal or purchased goodwill. For the purposes of calculating capital gains, the acquisition cost will be the actual purchase price; however, it will be null in the case of internal start-up.
6) Delayed payment of contributions to pension funds for employees results in a permanent denial of the deduction. An employer is required to deduct a certain amount from employees' salaries towards their social security funds. If the same is not remitted to the respective fund by the due date, such amount will not be deductible. Effective April 1, 2021 and applicable from fiscal year 2020-21 onwards.
International taxation
1) It is now clarified that taxation as a royalty or technical services charge under the Income Tax Act has priority over the Equalization Levy. The Equalization Levy is a tax on the digital activities of foreign companies that do not have a significant physical presence in India. To be considered as an online sale of goods and as an online provision of services, one or more of the following activities must be undertaken online:
– acceptance of the sales offer;
– placing the purchase order;
– acceptance of the purchase order;
– payment of the fee or
– supply of goods or provision of services, partially or entirely.
A transaction that is subject to the Equalization Levy will therefore be exempt from this tax from 1 April 2020.
2) Provisions on the Minimum Alternate Tax (MAT): MAT or Minimum Alternate Tax is a provision in direct tax laws to limit the tax exemptions availed by companies, so that they mandatorily pay a minimum amount of tax to the government. Under the current regime, the MAT is applicable at the rate of 15% on a company's profit, and if the accounting profit increases, the MAT valuation office recalculates the profit and the tax to be paid. For this to happen, the taxpayer will have to submit a request to the tax assessment office. The legislation will come into effect from April 1, 2021 and will be applicable from the 2021-22 fiscal year onwards.
3) For bureaucracy for small companies, it was decided to consider those companies with a paid-up capital of up to 20 million rupees as small companies (230,000 euros); and a turnover of up to 200 million rupees (2.3 million euros).
4) To encourage start-ups, it was decided that One-Person Companies (OPCs, single-member companies) they no longer have restrictions regarding paid-up capital and turnover. Furthermore, conversion into other types of companies is permitted at any time; finally, the residency limit for an Indian citizen to constitute an OPC has been reduced from 182 days to 120 days.
The Rupee/Euro exchange rate used for this article is updated as of February 16, 2021.
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