Taxation Amendments Affecting Foreign Investment
By Janvi Khatri, Zinzuwadia & Co. CA
Indian Direct Taxation was amended in a big way by The Finance Act, 2020, which can affect the computed cost of investment made in India. The changes will be made applicable from the current financial year, hence are highlighted here for your understanding:
A. Major Amendments for Companies
Dividend Distribution Tax Scrapped
Previously, companies were required to pay Dividend Distribution Tax at the rate of 20.56% and the dividend income received was exempt income for the shareholder. Presently, the dividend income received by the shareholders will be taxable in the hands of shareholders and the companies will not be required to pay Dividend Distribution Tax.
Minimum Alternative Tax Scrapped
The Minimum Alternative Tax means the tax is computed at a rate of 18.5% on the profit as per books of accounts, i.e., without adjusting the additions/ deductions as required by the Income Tax Act, 1961. Previously, the companies were required to pay the tax, which is higher than the tax computed from the provisions of Income Tax and Minimum Alternative Tax. Presently, companies opting for the lower corporation tax of 22% plus applicable surcharge and cess will not be required to pay tax and are not liable for the compliance of minimum alternative tax.
Option for Lower Tax Rates for Companies
Manufacturing companies established between 01 October 2019 and 31 March 2023 are eligible for a lower tax rate of 15%, plus applicable cess and surcharge on fulfilment of certain basic conditions. Companies other than manufacturing companies can opt for a lower tax rate of 22%, plus applicable cess and surcharge if mentioned conditions are fulfilled.
B. Amendments in Provisions of Residential Status of Individuals
A person of Indian origin would be considered Indian resident if he visits India and stays for 120 days during a financial year, and if his total income earned in India for the year exceeds INR 1.5 million.
An Indian citizen is deemed a resident of India for tax purpose if his Indian income exceeds INR 1.5 million. He is not liable to pay tax due to the criteria of any other country.
Janvi KhatriGGI member firm
Zinzuwadia & Co. CA
Advisory, Auditing & Accounting, Corporate Finance, Tax
T: +91 79 2646 77 74
Zinzuwadia & Co. (ZCO) is a Chartered Accountants / CPA firm in India, famous for their quality, integrity and commitment to professional responsibilities. ZCO is proud to have a well-trained professional team who can devise sound capital structure, efficient direct and indirect tax strategies.
CA Janvi Khatri is a Partner of ZCO. She assists clients with their tax planning, compliances and taxation litigations. Janvi also provides assistance in foreign company compliances with the Reserve bank of India.
Published: International Taxation Newsletter, No. 14, Spring 2021 l Photo: SaurabhAnandS - stock.adobe.com