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Business News/ Politics / News/  FM Nirmala Sitharaman shrugs off pleas by FPIs on super-rich tax
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FM Nirmala Sitharaman shrugs off pleas by FPIs on super-rich tax

Finance Bill amendments propose further tax relief for startups, NBFCs
  • Finance minister added more safeguards against tax evasion in the amendments to Finance Bill
  • Finance minister Nirmala Sitharaman speaks in the Lok Sabha during the Budget Session of Parliament, in New Delhi on Thursday (PTI)Premium
    Finance minister Nirmala Sitharaman speaks in the Lok Sabha during the Budget Session of Parliament, in New Delhi on Thursday (PTI)

    The super-rich tax is here to stay for a large section of foreign portfolio investors (FPIs), with Union finance minister Nirmala Sitharaman ignoring their pleas while proposing further tax relief for startups and non-bank lenders.

    In amendments to the Finance Bill proposed to Parliament and passed by the Lok Sabha on Thursday, Sitharaman added more safeguards against tax evasion.

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    The Union budget had proposed raising the income tax surcharge on taxpayers with income in the 2-5 crore range from 15% to 25%, and from 15% to 37% for those earning more. This takes the effective tax rate for those two groups to 39% and 42.74%, respectively.

    Sitharaman emphasized that while tax concessions are being given to the middle class for buying affordable homes and for small to medium businesses and sunrise industries to promote growth, the affluent have to contribute more in taxes for nation-building.

    “The essence of the taxation proposals in the Finance Bill are meant to promote ease of doing business, encouraging ‘Make in India’ and encouraging young entrepreneurs, who want to invest their own seed capital. That is the drive that ‘Make in India’ needs now, because there is a lot of enthusiasm among people who want to move from being in a salaried job to creating jobs for others," Sitharaman said in her reply to the discussion in the Lower House on the Bill.

    The Bill retained the provisions to raise surcharge on income tax on wealthy individuals, despite FPIs organized as trusts claiming they are assessed as individuals and therefore, will be hit by the move. Quoting officials who advised her, Sitharaman said those FPIs were at liberty to adopt a corporate structure for which no surcharge increase was announced.

    “FPIs organized as companies will not be affected by the increase. Only high-income individuals are covered by it and it is this government’s policy that such individuals should contribute more for nation-building," said the minister.

    The Finance Bill amendments sought to give relief to startups in terms of carrying forward their losses.

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    In a relief for non-banks facing a liquidity crisis, the Bill proposed that such lenders receiving interest from bad or doubtful loans would be taxed only on receipt of the income, not on an accrual basis, a method of recording transactions for revenue when earned and expenses when incurred. While giving concessions to startups, the Bill also proposed penalties for any abuse of such concessions, tax experts said.

    The Bill also tightened the anti-evasion measures that were part of the original Finance Bill tabled earlier this month.

    According to this provision, individuals have to deduct tax at source at the rate of 5% while making payments above 50 lakh as brokerage as well. The original bill had proposed this in the case of payments to contractors and professionals only.

    The Bill also clarified that a proposal in the original Bill requiring a 2% tax to be deducted at source in cases where a person withdraws more than 1 crore a year from banks or cooperative banks or post office accounts applies to all accounts of that person taken together.

    Rakesh Nangia, managing partner at Nangia Advisors (Andersen Global), explained that the amended proposal provides that if a person maintains more than one account with the same bank, the bank shall aggregate the withdrawals made from all such accounts to compute the threshold for tax deducted at source.

    “The government is expanding the coverage of tax deducted at source rapidly," said Neeru Ahuja, partner at Deloitte India.

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    Published: 18 Jul 2019, 06:09 PM IST
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