Union Budget 2020: Key Highlights for Corporates - ANB Legal

The Hon’ble Finance Minister, Smt. Nirmala Sitharaman presented the proposed Union Budget on 1st February 2020. Various attempts have been made in the proposed budget to pave the way for fueling the economy by attracting investments through introduction of tax benefits and various policy measures.

We have summarized below, some of the most significant changes for the corporate sector, which are likely to have an impact on the future business and investments in India.

·        Reduction in Corporate Taxes for Manufacturing Sector: Reduction in the corporate tax rate for new companies in the manufacturing sector, to an unprecedented level of 15% has been proposed. Similarly, for existing companies, the rate has also been brought down to 22%. As a result, the nation’s corporate tax rates would become amongst the lowest in the world, and help India remain globally competitive and become a favored destination for investments.

·        Scrapping of Dividend Distribution Tax (DDT): As per the current tax regime, companies are required to pay Dividend Distribution Tax (DDT) on the dividend paid to its shareholders, at the rate of 15% plus applicable surcharge and cess. Further, non-availability of credit of DDT to most of the foreign investors in their home country results in reduction of rate of return on equity capital for them. In order to increase the investments and to provide relief to a large class of investors, the Government decided to do away with the DDT and adopt the classical system of dividend taxation, under which the companies would not be required to pay DDT. The dividend so distributed shall be taxed only at the hands of the recipient shareholders, at the applicable rates.

·        Reduction in Rates for Personal Income Tax: Proposed reduction in personal income tax rates, subject to meeting the specified conditions, has been proposed, which will increase the amount of disposable funds in the hands of taxpayers. This in turn, would encourage them to spare more funds for the purpose of investing.

·        New National Education Policy: The Government shall soon announce the new National Education Policy, which would allow FDI and foreign currency loans in the education sector.

·        Proposed Changes in Contract Act and Companies Act: In her speech, the Hon’ble Finance Minister also touched upon strengthening the Contract law and amending certain provisions pertaining to criminal consequences in the Companies Act.

Thus, the Union Budget of 2020 has made a definite attempt to entice global investors and breathe new life into the slacking Indian economy.