Tax Highlights Of Indian Budget 2018

; posted on
February 7th, 2018

The India budget 2018 presented by the Finance Minister Arun Jaitley to the parliament has arisen highly attention due to its radical reforming measures, in particular in the field of direct taxation. Alongside a proposed reduction in corporate income tax to 25% for resident companies, there are other tax proposals worthy to be noted.

Notable Changes from International Taxation Perspective

The budget has introduced a remarkable revamp into the concept of “permanent establishment(PE)”.

On the one hand, a lower threshold of dependent agency PE is suggested in accordance with the recommendation by OECD. This is achieved by signing the multinational instrument and acts as an anti-abuse or anti-avoidance measure to enhance the proper function of the current PE principle.

On the other hand, the business connection concept under Income Tax Act (1960) is supplemented with “significant economy presence” concept, in accordance with the suggestion by the Committee on Taxation of E-Commerce. A non-resident would be deemed to have a significant economy presence within the country irrespective of whether it has a physical presence or not if:

  • the non-resident supplies service, goods, and property in India and derives revenue by provision of download of data/software exceeding certain threshold; or
  • the non-resident operates business in India on a continuous and systematic basis, interacting with local users through digital means and the number of users exceeds certain amount.

These articles are only valid if they have been inserted into bilateral tax treaties signed by India.

Other Changes Proposed

From domestic perspective, this budget 2018 also propose the following measures:

  • A 10% tax on long-term capital gains arising from disposal of shares or equity-oriented funds or business trust;
  • A prolonged date for submitting documents required by the country-by-country reports for fiscal years 2017-18 and thereafter, with clarification of "reporting accounting year";
  • An increase in import duty on certain items, including mobile phones and their components, television components.

Sources: SUPER LEAP Budget 2018, Money Control Budget 18

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