Budget measures: Direct and Indirect Tax changes
- Relief granted on dividend income earned by shareholders:
- Advance tax liability will now be computed on dividends only after declaration or receipt whichever is earlier;
- TDS exemption on dividends paid by SPVs to REITs and InvITs;
- TDS related provisions have been made more stringent:
- TDS at 0.1% to levied on the purchase of goods above INR 5 mn a year, where the turnover of the buyer exceeds INR 100 mn
- The rate of TDS/ TCS shall be higher than 2x actual rate, or 5%, in case of non-filing of ITR for the last 2 years
- Late deposit of employee contribution to labor welfare funds would not be allowed as a deduction to the employer.
- Tax Audit applicability based on turnover limit has been increased from INR 50 mn to INR 100 mn, with 95% of receipts and payments being digital;
- GST minor compliance changes – Form 9 substituted with self-reconciliation and Form 9C being scrapped.
Has the Budget made managing Corporate Finance somewhat easier?
- Relief on dividend income is a welcome move since this helps CFOs to pay dividends more tax-efficiently, making future investments in their companies more lucrative;
- Additionally, dividend relief to REITs and InvITs shows the government’s commitment to continue providing support to the conglomerates operating in real estate and infrastructure space (eg. Logistics);
- However, the government seems to be more and more unforgiving to defaults in TDS/ TCs norms. Companies/ CFOs ought to take note and ensure compliances accordingly;
- With easing of tax audit norms (both income and GST), it has reduced the compliance burden for smaller and subsidiary companies of larger MNC groups, whose turnover is within the limits, helping the CFOs to focus on running financing operations of the group.
CFOs ought to take note of the changes in the Budget and plan their next financial year accordingly. The budget may come off as somewhat bittersweet, however, relief in dividend provisions, including for REITs and InvITs, is an indicator for the government’s push to bring more investment into India. TDS provision becoming more stringent comes as no surprise given the current risk of non-compliance (monetary penalties in addition to the risk of prosecution of managerial personnel of the defaulting companies).