On 27 March 2020, the Central Board of Direct Taxes (CBDT) published the Finance Act 2020 that includes measures announced as part of the Union Budget 2020-2021 and others. The measures of the Finance Act generally apply from 1 April 2020 (or assessment year beginning 1 April 2021).
The finance act includes the following key tax measures:
- Abolishing the 15 percent dividend distribution tax and only requiring the dividend to be taxed in the hands of the recipient;
- The extension of the concessional corporate tax rate of 15% for the manufacturing sector to new domestic companies engaged in the generation of electricity;
- Extending the 5 percent reduced withholding tax for specified nonresident interest income to July 2023;
- Start-ups with turnover up to Rs. 100 crore to enjoy 100% deduction for 3 consecutive assessment years out of 10 years;
- The deferral of the new definition of significant economic presence (digital PE) so that the new provisions will take effect from 1 April 2022;
- Extends the applicability of the safe harbor and advance pricing agreement (APA) provisions regarding the determination of income attributable to a business connection or a permanent establishment (PE) of a nonresident in India.
- Concessional tax rate for co-operative societies of 22% plus 10% surcharge and 4% cess with no exemption/deductions.
- To incentivize investment by Sovereign Wealth Fund of foreign governments, grant 100% tax exemption to interest, dividend and capital gains income in respect of the investment made in infrastructure and other notified sectors before 31st March, 2024 and with a minimum lock-in period of 3 years.
- A reduction to the domestic withholding rate on fees for technical services from 10% to 2%.
