CBDT chief hints 15 per cent tax for new units may stay longer

The government may take a “fresh call” on extending the sunset date for the concessional 15% corporate tax for new manufacturing units beyond March 31, after the general election, Central Board of Direct Taxes Chairman Nitin Gupta told FE on Friday.

“Anything can happen (on the concessional tax). If there are demands for the extension of the sunset date, it could be considered after the polls. But as of now, this is the position of the government,” Gupta said.
Industry leaders and leading tax consultants were hopeful that the government will grant an extension to the sunset date, at least by a year, as a non-extension may discourage fresh private investments in the economy. From April 1, any new manufacturing unit set-up will be required to pay corporate tax at 22%.
 

“Companies who have already committed to the investments will work towards completing the projects with a hope of getting extension on reduced rate in full budget. However, the uncertainty due to non-extension will result in re-thinking around fresh investments,” said Raju Kumar, tax partner, EY India.

On the expectation of further sweetening the personal income tax (PIT) regime, CBDT Chairman said that the “exemption-free, deduction-free” regime, or the new tax regime, first introduced in FY20 was already sweetened in the last year’s Budget, and was broadly in line with the government’s objective. “The government wants a tax regime where there is simplicity, doesn’t require holding papers, interpretational differences are avoided, and litigation issues don’t arise.”

Gupta said that the new tax regime is in favour of both the high and low income tax earners, and he hopes that more than 60% of taxpayers would migrate to the new tax regime. The new tax regime offers lower income tax rates with a threshold of Rs 15,00,000 for the highest tax rate as compared to the old regime where the threshold for highest tax rate was Rs 10,00,000. The basic exemption under this regime has also been increased to Rs 3,00,000 from Rs 2,50,000.

Further, the rebate under the new tax regime has been increased to Rs 7,00,000 from Rs 5,00,000 before and the benefit of standard deduction of Rs 50,000 has also been extended to the salaried class and the pensioners including family pensioners. Accordingly, a salaried individual earning a gross income of Rs 7,00,000 would not be required to pay any taxes even if no investments are made under Section 80C.

Also, high networth individuals (HNIs) earning more than Rs 5 crore would prefer the new regime as the maximum marginal tax rate has dropped from 42.74% to 39% due to changes made in the rate of surcharge. The CBDT Chairman also said that if any “deduction or exemption” is allowed in the new regime, it will defeat the purpose, and the new regime will become the old regime.

On the implementation of the Base Erosion Profit Shifting (BEPS) Pillar 2 tax package, which was an expectation of industry, given several Organisation for Economic Co-operation and Development’s (OECD) nations have implemented these rules, Gupta said that it’s a “complex issue”.

“We’re negotiating at the OECD. There are some negotiations taking place with other countries. We can’t comment or give any guidance,” he said. BEPS Pillar 2 aims to ensure that large multinationals pay a minimum 15% tax in each country where it operates. The tax would be applied to multinationals with revenue of at least $750 million.

Vijay Gilda, partner – tax, BDO India, said, “With no such announcement, Indian multinationals will have to wait and watch if any announcement is made by the new government in its first Budget and evaluate the impact of the same on them.” The CBDT Chairman also ruled out introducing any amnesty scheme to benefit those multinational corporations who have been affected by the recent Supreme Court’s ruling in Nestle SA case.

The apex court had ruled in October that no automatic international treaty benefit, including a lower withholding tax of 5%, is available to foreign companies operating in India. This has affected several multinationals, and their tax liability is reportedly over Rs 11,000 crore.

“The CBDT’s stance on this is clear. The taxpayers took a different view, and felt that they are eligible for a lower withholding tax. The Supreme Court has now given clarity to the taxpayers. They owe a tax liability as they paid lower tax,” said Gupta.

The SC judgement, experts say, had significant implications on the interpretation of the Double Taxation Avoidance Agreement (DTAA) and the diverse benefits that taxpayers have traditionally accessed.

While setting aside a Delhi High court ruling in the Nestle case, a division bench of the apex court said: “a notification under Section 90 of the Income Tax Act is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a Double Taxation Avoidance Agreement.

The HC had earlier ruled that the Most Favoured Nation (MFN) clause in India’s DTAAs withOECD member countries provides for lowering of the rate of taxation at source on dividends, interest, royalties or fees for technical services paid by Indian companies to foreign parents. Such concession, the HC noted, would be given to the respective OECD country subsequently.

Source :- Financial Express