ABOLITION OF DIVIDEND DISTRIBUTION TAX
Under existing regime, profits distributed by companies to their shareholders attracted dividend distribution tax (DDT) at effective rate of 20.56%. Such DDT was a pure cost for companies, being no credit available to shareholders. Additionally, this would leave less for companies to distribute as dividend. Further, individual shareholders earning more than ~10 lakh as dividend were also subject to income tax on such dividend income at the rate of 10%
The present system of DDT resulted in 3tier taxation of profits earned by a company: First corporate income tax paid by company on its profits, secondly as DDT, and thirdly as tax on dividends paid by individual shareholder.
The abolition of DDT comes with pitfalls also. Earlier, the company was paying 20.56% but now the recipient will pay taxes at the rates applicable on his total income. Thus, the recipient with income (including dividend) in the range ~12.50 lakh to ~15 lakh will pay income tax @ 26% and so on. Moreover, the individuals having income (from all sources, including dividend) of more than ~2 crore, will pay taxes @ 39% and those above ~5 crore, will have to pay 42.74 % , which otherwise was 20.56 % in the earlier regime.
Existing personal income tax slabs and the amount of savings eligible for tax break require rationalisation. Social security and pension contributions, insurance and investments getting clubbed under the
The impact of new tax slabs/ regime for individual taxpayers shall vary from case to case, depending upon the aggregate amount of exemptions claimed by the individual under the existing regime. The option shall be beneficial for those who were not availing of exemptions/deductions previously. However, for individuals already availing of full benefit for exemptions/ deductions available under the income tax provisions, new regime may actually result in increased tax liability and they would have no benefit/ incentive to opt for the new slab rates.
“Abolition of DDT and rationalisation of compliances of nonresidents provide relief. TCS provisions will certainly widen the tax net. On the personal tax front, position is complex with an additional, though optional regime. The intent of reducing litigation is appreciable and the resolution scheme should find many takers”
RAKESH NANGIA
Start-up taxation is evolving in India which has been the subject matter of significant litigation in the recent years. Government has softened the tax position on “angel taxation” through periodic circulars and clarifications and placed restrictions on angel-tax disputes and recoveries. Most of the start-ups are in early state and are expected to generate profits over a period of
The proposal has tried to synchronise the turnover threshold for start-ups prescribed by Department of Promotion of Industry and Internal Trade at ~100 crore from existing ~25 crore for start-ups to qualify for profit-linked deduction. These give leeway for more start-ups to obtain tangible tax holiday given their exponential growth models.
The Bill has also proposed to extend the eligible period for start-ups to claim profitlinked deduction — available for three consecutive years over an extended 10 years window period as against the existing 7 years. Perquisite taxation, which was a cash cost to start ups to fund employees discharge tax on ESOP upon vesting, now have a leeway to defer the taxation on earlier of 5 years from date of allotment, or prior to leaving the employment or sale of securities. The proposal is expected to allow start-ups use ESOP effectively as a hiring tool.
Currently, a large sum of tax demanded by government is stuck in tax disputes at various levels. This has not only resulted in uncertainty both for government and taxpayers, but also clogged the courts and tax tribunals with large number of pending
The proposal of bringing a Direct Tax Amnesty Scheme in Budget in name of ‘Vivad se Vishwas’, shall help generate a positive sentiment amongst taxpayers who have been suffering owing to the cumbersome litigation process. With the scheme the government wishes to realise tax revenue locked in dispute and also clear the large number of long pending cases from the system ‘Housing for All by 2022’ has been one of the long cherished dreams of the Modi government right since its first tenure. However, Indian real estate sector is constantly going through one of its greatest slowdown phase for past several years
Being one of the largest employment generating sectors of the economy, there was a dire need to give further incentive/ push to housing sector
In Budget proposals, the government has increased the approval window/ sunset provision for tax exempted affordable housing projects by 1 year. Simultaneously, eligible time period for taking home loan by individuals for purchasing houses under such affordable housing projects and claiming additional deduction of ~1.5 lakh has also been increased by 1 year. Additionally, the permissible non-taxable valuation gap between stamp duty and actual sale price has been increased from existing 5% to 10% in this budget. These measures are likely to have positive impact on the real estate sector.