Union Budget 2023 – Expectations of Corporate India
The corporate tax ideas for the Union Budget 2023 will be crucial to laying the groundwork for India’s exploding economic growth as it prepares to take centre stage in the global economy as the economy with the fastest rate of growth. The top priorities for corporate India and the international investor community are to increase India’s contribution to global manufacturing, increase credit availability, establish new firms, and encourage foreign investment in India’s capital markets.
Therefore, an extension in the dates to take advantage of the 15% concessional corporate tax rate currently offered to manufacturing enterprises that begin production by March 31, 2024, is at the top of corporate India’s expectations list. Continued policy support from the government will assist it reach its objective of raising the manufacturing sector’s contribution to up to 25% of the GDP.
Additionally, India currently offers a 5% reduced withholding tax rate to international portfolio investors who buy bonds issued by Indian corporations denominated in rupees. For bonds and loans sanctioned under the ECB system that are denominated in foreign currencies, a withholding tax rate of 5% is also offered. It is hoped that the government will take into consideration an extension given that this tax benefit is scheduled to end on July 1, 2023, to enable continuous access to international loans.
Union Budget 2023
Corporate India anticipates changes to the capital gains tax laws in India, which are currently hampered by inconsistent holding periods and tax rates for various asset types and investors. According to reports, the government is considering a more straightforward set of tax regulations that address the distorting impact of different tax laws.
The rationalisation of STT, CTT, and CGT rates will also aid in the expansion of India’s capital markets. To provide LLPs with an equal playing field, it is envisaged that the tax rate for LLPs will also be in line with the current corporation tax rates.
A high dividend tax rate discourages the repatriation of income to India as corporate India looks abroad to diversify and gain from globalisation. Notably, a number of European countries have offered participation exemptions or exempted dividends from the taxation of the home country. The 15% concessional tax rate that was formerly applied to dividends received by Indian corporations from foreign subsidiaries is hoped to be reinstated by the government.
Technology and digitalization have had a big impact on Indian markets and businesses. There have been several new Web 3 products and business models introduced. However, the government has taken a cautious approach to taxing digitalization enterprises. Notably, tax policy continues to treat cryptocurrencies and other digital assets equally and imposes a strict tax framework on the entire sector. Furthermore, the industry’s requests regarding the burden of section 194-O TDS provisions in business models where the platform operator is not involved in the transaction chain, clarity regarding the scope of the equalisation levy’s catch-all provisions, and the ability to refund or credit equalisation levy against withholding tax on royalties and fees for technical services remain unanswered.
To support the Indian start-up ecosystem, the Indian government has implemented a number of tax initiatives over the years. Aside from tax benefits, start-ups frequently face tax concerns such the ability to deduct ESOP expenses, ambiguity around the taxation of ESOP trust structures, applicability of Section 68 to investments made by foreign investors, taxation of earn-outs, etc. Despite encouraging judicial precedents, these problems nonetheless persist for startups.