On 29 March 2018, the Finance Bill 2018 received the approval of the president and now is enacted law, following some changes made by the lower house of parliament on 15 March 2018. This law would apply with effect from 1 April 2018.
The main tax measures are:
-A reduced corporate income tax rate of 25% will be applied to Indian companies with gross receipts not exceeding INR 2500 million in the previous year;
-The replacement of the education cess and the secondary and higher education cess (3% combined) with a single health and education cess at the rate of 4%;
-The Finance Act also amend the definition of a permanent establishment for the taxation of non-resident digital companies operating in India. According to the previous proposal, a business connection includes a “significant economic presence” in India. A significant economic presence is defined as systematic and continuous soliciting of business activities or engaging in interaction with users in India through digital means (above certain specified thresholds); or transactions in goods, services or property carried out by a non-resident in India including the provision of downloads of data or software in India, above specified thresholds. The definition of a PE is also extended to cover activities carried out through a person who habitually plays the principal role in conclusion of contracts that are in the name of the non-resident; that relate to transfer of ownership or right to use in relation to a property owned by the non-resident or which the non-resident has a right to use; or contracts for provision of services by the non-resident. In addition to the domestic law change India’s double taxation treaties would have to be amended to make this provision effective with treaty partner countries.
-The Finance Act now introduces a tax of 10% on capital gains in excess of INR 0.1 million on transfers of specified assets after 31 March 2018. Grandfathering is provided for gains accruing up to 31 January 2018. Similar provisions are applicable for capital gains in the hands of foreign institutional investors.
-Start-ups are eligible for a 100% deduction of profits in three out of seven years from the date of incorporation. The Finance Act has expanded the definition of start-ups eligible for this incentive.
-With retrospective effect from the fiscal year 2016-17, the Finance Act has made certain amendments to the CbCR regime. The amendment of the CbC reporting rules, including:
- A change in the CbC report deadline for ultimate and surrogate parents resident in India from the tax return deadline to 12 months after the end of the reporting accounting year; and
- A change in the CbC report deadline for non-parent constituent entities (local filing) from the tax return deadline to “within the period as may be prescribed” (not yet prescribed).
