Union Budget 2019-20 : Implication on Companies

The Union Budget for the financial year 2019-20 was presented by the finance minister Ms Nirmala Sitaraman on 5th July 2019.

Followings are the implication of Union Budget 2019-20 on the Indian Companies –

  • The minimum level of public shareholding in the listed companies raised from the current threshold of 25% to 35% level.
  • Government to disinvest in nonfinancial public sector undertakings. The disinvestment may go below 51% to an appropriate level as decided by the government on case to case basis.
  • The corporate tax rate for companies with a turnover of 400 crores will be 25%

International Financial Services Centre (IFSC):

The GOI has proposed following additional tax benefits along with tax concessions which are already provided in respect of businesses being carried on from an IFSC unit.

Presently, the IFSC unit is allowed the deduction of 100% of its profits for the first five consecutive years of its commencement and the next consecutive five years deduction of 50% of its profit is allowed.

As per, union budget 2019-20 now it is proposed by the government to provide for 100% deduction for 10 consecutive years.

Also,

IFSC has been allowed to claim the deduction, at their own choice for the next 10 years which was previously 15 from the year of incorporation.

Incentives to certain Non-banking Financial Companies (NBFCs):

Currently, the tax is charged on an accrual basis on the interest income on bad or doubtful debts made by NBFCs.

However, the tax is charged on receipt basis on the interest income on bad or doubtful debts made by the scheduled commercial banks, PFIs, State financial corporations, Co-operative banks and certain other public companies like housing finance companies.

As per the amendment made under Union Budget 2019,

it is proposed that the tax will be charged on receipt basis on the interest on bad or doubtful debts in the case of deposit-taking NBFC and systemically important non-deposit taking NBFC

Incentives for start-ups:

Currently, the eligible start-ups are allowed to carry forward and set-off of losses.

Now, it is proposed to be relaxed enabling them to carry forward their losses on the satisfaction of any one of the two given conditions, i.e.

  • continuity of holding 51% shareholding/voting power or,
  •  continuity of holding 100% of the original shareholder.

Further, the exemption of capital gains from the sale of residential property on investment of net consideration in equity shares of the eligible start-up has been proposed to be extended by 2 years.

The condition for a minimum shareholding of 50% of share capital or voting rights in the start-up is now reduced to 25%.

Incentives for resolution of distressed companies

Amendment in Income tax law has a critical impact on the revival of distressed companies. If tax laws are not aligned properly, it will impact negatively on the acquirer of the companies. The acquirer will have to bear high tax liabilities on waiver of debts.

Current Income Tax Provisions relating to IBC

As per Finance Act, 2018 relaxed the norms established by section 79 of The Income Tax Act, which allows to carry forward and set-off losses in case of closely held companies.

Note: The relaxation in section 79 is according to the approval of resolution plan under IBC

Minimum Alternate Tax ( MAT)

Current MAT provisions allow distressed companies to set off unabsorbed depreciation (lower) for computing MAT liability.

Proposed Amendments

Where NCLT has suspended the board of directors of the companies and new directors appointed replacing them by the central government

In such cases,

The continuity of shareholding for carrying forward or setting off losses shall not be applied.

Current MAT provisions

Computation of Minimum Alternate Tax (MAT) liability of such companies is amended to with the finance act to lessen the hardship commonly faced by NCLT.

The amendment to section 115 JB of the Income Tax act makes it possible for companies to set off the aggregate brought forward of losses. The unabsorbed depreciation shall also be allowed as deduction.

Ease of compliance for small businesses:

The compliance burden is proposed to be reduced from small businesses and professionals.

To reduce the burden, the following measures have been taken by the Government:

  1. Threshold limit for presumptive taxation of businesses been raised from Rs. 1 crore to Rs. 2 crores.
  2. For the maintenance of books of accounts by individuals/HUFs,
  3. (a)    Income threshold has been raised from Rs. 1.20 Lacs to Rs. 2.5 Lacs; and
  4. (b)   Turnover threshold has been raised from Rs. 10 Lacs to Rs. 25 Lacs

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