India Budget 2018-19 highlights

India’s Finance Minister, Arun Jaitley, today released the government’s 2018-19 budget and finance bill. Here is a rundown of tax proposals of particular of interest to MNEs:

  • The budget would reduce the corporate tax rate from 30 percent to 25 percent for enterprises with turnover of Rs 250 crore or less. No personal income tax rate changes were proposed.
  • The budget introduces a 10 percent tax on long-term capital gains of over Rs 1 lakh derived from the sale of equity shares or a unit of an equity oriented fund or a unit of a business trust.
  • Amendments are proposed to the country-by-country reporting rules for multinationals, applicable to assessment years 2017–18 and thereafter, which extend the due date for furnishing such reports and which define the term “reporting accounting year.”
  • The budget proposes to update the definition of a permanent establishment to tax non-resident digital firms operating in India. Under the proposal, a business connection includes a  ‘significant economic presence’ in India and a ‘significant economic presence’ is:
    (i) any transaction in respect of any goods, services or property carried out by a non-resident in India including provision  of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or
    (ii) systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means.
    India’s double tax treaties would need to be amended to make this provision effective.
  • The budget proposes to adopt the dependent agent permanent establishment rules provided for in the OECD Multilateral Instrument.
  • Increases in customs duty on some imported items are also provided for, including duties on mobile phones and components of mobile phones and television sets.

 


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