The slew of amendments to the Finance Bill — softening the tax blow on non-resident Indians (NRIs), expanding the equalisation levy to foreign ecommerce companies, exempting real estate investment trusts (Reits) from dividend distribution tax and extending the tax exemption for sovereign wealth funds (SWFs) to pension funds for infrastructure investment — are welcome.
So are the deadline extensions announced by the finance minister. The amended Bill sets a threshold at `15 lakh to tax India-sourced income of NRIs who do not pay tax in any other jurisdiction. It will provide relief to many Gulf workers with small incomes in India. A person would now be considered a resident in India if she is in the country for 120 days, down from earlier 180 days.
Some claim that the equalisation levy of 2% on non-resident ecommerce sans a permanent establishment in India will raise the compliance burden for foreign e-commerce companies and pose legal challenges. This is disingenuous. The principle behind taxation is that any income that an enterprise derives from economic activity enabled by the organisation of affairs in the country in a way that allows business to be conducted should surrender a part of that income as tax to the government.
The equalisation levy is fair: it will bring revenues and also boost the global move towards ending multinational company practices dubbed as base erosion and profit-shifting (Beps). A conducive tax policy on Reits will help developers saddled with debt, offload inventory and reduce bad loans on the banks’ books. Other changes such as lowering the tax collected at source rate to 0.5% from 5% for transfer of money overseas through Liberalised Remittance Scheme if the amount is borrowed from financial institutions to fund education are incremental.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
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