With the impact of the pandemic easing out in India and hope for a speedy revival, this Budget is predicted to be a gamechanger.
In current occasions, the Centre has undertaken a number of steps to attract international traders and increase the Indian economic system. By opening up and rising Foreign Direct Investment (FDI) in a number of sectors it has unlocked the gate of alternatives. Through the Finance Act, 2020, it supplied a decreased tax charge of 15 p.c for brand new manufacturing items so as to present a lift to the manufacturing sector. Taking this baton additional, it’s anticipated that the Union Budget 2021 will dole out a number of incentives to venture India as a rustic, of immense alternative. Here are sure tax proposals that would support in attracting international investments.
Safe harbour guidelines
In order to deliver tax certainty and cut back Transfer Pricing litigation, the Safe Harbour Rules had been launched in 2013. These guidelines present the switch worth declared by an eligible taxpayer in respect of a specified transaction to be accepted by the income authorities, topic to fulfilment of specified circumstances. While these guidelines had been legitimate until the fiscal yr 2018-19, its applicability was until FY 2019-20. The Budget should prolong the validity of this Rule by not less than two more years.
Further, due to the COVID-19 pandemic, companies have been severely impacted and have seen a downturn. The parameters talked about in these guidelines might not be relevant throughout these occasions. Hence, the Budget should additionally rationalise the parameters to deliver them in step with the present financial state of affairs.
The sudden lockdown resulted in a number of expats being stranded in India. With the prolonged lockdowns and restriction on worldwide journey, stranded international nationals/non-residents had been prone to being considered Indian tax residents. To resolve this subject, the Central Board of Direct Taxes had issued a round stress-free the interval to be thought-about for computing the tax residential standing. However, such rest was for FY 2019-20 solely. With the journey restriction and lockdown spilling to FY 2020-21, the Budget should deliver related relaxations for subsequent years as properly.
Place of efficient administration (POEM)
The overstay of a person due to the COVID-19 induced lockdowns and restriction on worldwide journey led to an publicity of international corporations having a POEM in India if the overstaying particular person occurred to be a key determination-maker. Once a international firm has a POEM in India, it’s considered a home firm for revenue tax. Since the overstay in India will not be intentional however is compelled by uncontrolled circumstances, the Budget should present some rest for instances the place the important thing determination-makers had to keep in India.
Cross border transaction
Indian corporations at the moment are remodeling themselves to have a more international outlook. They are scouting for alternatives to broaden their operations abroad. One of the methods for increasing the enterprise is by the use of acquisitions and mergers with offshore corporations. While a merger of two Indian corporations, topic to fulfilment of sure circumstances, is tax impartial, the same tax profit will not be accessible when one of many companies will not be an Indian firm. Hence, the Budget should introduce a provision to deliver the merger of an Indian firm and a international firm inside the ambit of a tax impartial merger.
In May 2020, the finance ministry introduced that Indian corporations can be permitted to record in abroad international exchanges. This is a welcome transfer as it can give more fund-elevating alternatives to Indian corporations. Currently, Indian listed corporations take pleasure in sure tax advantages (say a change in administration management won’t end in a lapse of introduced ahead enterprise losses). This Budget should prolong the tax advantages/relaxations accessible to an Indian listed firm to Indian corporations listed on abroad international exchanges as properly.
With the impact of the pandemic easing out in India and hope for a speedy revival, this Budget is predicted to be a gamechanger. The finance minister’s announcement that this Budget can be a by no means like earlier than one, has solely doubled the expectations of residents and companies alike. While the federal government has taken steps to attract FDI, a tax certainty will enhance the arrogance of international gamers and hopefully, this Budget will deal with numerous considerations of international traders.
The author is Partner and Leader – Tax and Regulatory Services, BDO India
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