Here are five important takeaways from the Budget that India Inc should take note of:
1. Dividend income from abroad
Indian companies enjoyed a concessional rate of 15% on dividends earned from companies abroad where the shareholding is more than 26%. The Budget proposes to abolish that regime and tax dividends as normal income. This move seeks to bring parity between dividends earned from domestic companies with that of foreign companies. In the Budget of 2020-21, the dividend distribution tax was abolished and made tax taxable in the hands of the recipient at the slab rate.
2. Tax relief for new manufacturing companies
Rejigging the corporate tax structure and reducing it to 15% for new manufacturing companies was one of the major highlights of the Modi government. Those companies set up after October 1, 2019 and starting manufacturing before March 31, 2023 will gain from the move and pay tax at 15%. This deadline is now extended till March, 2024.
3. Parity in LTCG
The capping of surcharge on LTCG at 15% across all asset classes will be a huge relief for the startup investor community. The capping will reduce the tax burden on the LTCG front in unlisted shares by about 4.5%. Those founders or investors who make an early exit and sell shares in startups can gain from the move.
4. Health and education cess
The FM clarified that the legislative intent on health and education cess and proposed that any surcharge or cess on income and profits is not allowable as business expenditure. The FM said that some courts had allowed health and eductaion cess as business expenditure and it was against the legislative intent. She added that the income tax is not an allowable expenditure for calculating business income.
5. Relief for startups
Startup established before March 31, 2022 enjoy tax holiday for three consecutive years out of ten years from date of incorporation. Due to the Covid pandemic, the FM proposed to extend the period of incorporation for the eligible startups by one more year up to March 31, 2023.
