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Last Updated : Feb 24, 2020 04:54 PM IST

The fineprint: Decoding Budget 2020

The following article is an initiative of PwC India and is intended to create awareness among readers

Moneycontrol Brand Connect

Finance Minister Nirmala Sitharaman’s second Union Budget received mixed reactions from the India Inc. and individuals. There were a string of policy announcements and a lot of emphasis was laid on taxation, divestment, infrastructure and more.

To discuss the Budget 2020’s fineprint and major tax and policy reforms, experts sat down for a discussion at PwC presents India Tax Talks in association with CNBC-TV18, where they deliberated extensively on the tax angle, especially the Dividend Distribution Tax (DDT).

Industry stalwarts Gautam Mehra, Partner and Leader Tax & Regulatory Services, PwC India; Anuprita Mehta, Vice-President- Taxation, Piramal Enterprises, Manish Sheth, MD& CEO, JM Financial Home Loans & Group CFO, JM Financial; and Deepal Shah, CFO, Allcargo Logistics spoke about important changes, certain key takeaways in taxation and where the budget leads up.

Speaking of DDT, Sheth welcomed the decision by Sitharaman.

“The decision on DDT is a welcome move, especially in corporate India where you have cascading effects and it ends up having taxability in the hands of end recipient… so if you are a corporate and receiving from another corporate dividend and you pay dividend, there is no taxability. But, if you are an HNI and you receive the end dividend, you may end up paying 40% tax,” said Sheth.

At present, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess, in addition to the tax payable by the company on its profits. In order to increase the attractiveness of the Indian equity market and to provide relief to a large class of investors, Sitharaman proposed to remove DDT, and adopt the classical system of dividend taxation, under which the companies would not be required to pay DDT.

“It benefits small shareholders, MNCs, and while for HNIs it may appear to have gone up from 20% to over 40%, it is actually a move from 30% to 40%, since they would have been paying the 10% additional tax on dividends earlier, and so long as the promoters are holding their holdings through corporate vehicles, you are actually moving from 20% to around 25% which is the optional corporate income tax rate under the new regime. One wrinkle that needs to be re-looked at is the impact on REITs and InvITs,” said Mehra.

“There were a lot of baby steps in terms of building trust, tweaking the personal taxation to do away with the deductions over a longer period of time, DDT was expected… they probably could have done more. The expectations were huge but this is what we have as of now,” said Shah.

The removal of DDT will lead to estimated annual revenue foregone of Rs. 25,000 crore.

Meanwhile, experts also discussed about the new 1% tax deduction at source on e-commerce transactions.

“The budget lays a lot of emphasis on compliance and provisions like tax collection at source. Also, the e-commerce operators have to withhold 1% TDS from the e-commerce participants. Apart from that, there is a lot of digitisation move… the government wants to pre-fill your income tax returns so they are asking you to submit various tax audit reports much in advance,” said Mehta.

The experts also spoke at length about remittances, faceless appeals, insurance, salaried class, income tax for NRIs, etc.

Watch the full video here.

First Published on Feb 24, 2020 01:43 pm
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