ANALYSIS OF UNION BUDGET 2019-20 RAJEEV SOGANI R SOGANI & ASSOCIATES 1

WAIT FOR DIRECT TAX CODE NO BOLD TAX REFORMS WAIT FOR DIRECT TAX CODE

INTERNATIONAL FINANCIAL SERVICE CENTRE (IFSC)

INTERNATIONAL FINANCIAL SERVICE CENTRE (India) Gujarat International Finance Tec – City (GIFT) Direct Job Creation Expected 5,00,000 Expected to fetch business USD 50 Billion Committed Investment till date INR 11,000 Cr. S. No. Sectors Covered (Illustrative) 1. International Techno Park & International Market Zone 2. Offshore Banking 3. Data Centre 4. Financial Services 5. IT/ITES 6. BPO/KPO 7. Insurance 8. Commodity Exchange 9. Global Trading Exchange

INTERNATIONAL FINANCIAL SERVICE CENTRES (Global Perspective) Source: IFSL, UK

LISTED COMPANIES

ADDITIONAL INCOME TAX ON BUY BACK OF LISTED SHARES Section 115QA provides for levy of additional income tax at 20% of distributed income on account of buy-back of unlisted shares by the company. This shall be applicable w.e.f 5th July, 2019. Earlier After Budget 2019 Applicable on shares not listed on recognized stock exchange. Applicable on shares listed on recognized stock exchange and also even unlisted shares.

ADDITIONAL INCOME TAX ON BUY BACK OF LISTED SHARES

MINIMUM PUBLIC SHAREHOLDING AT 35% The SEBI has been asked to consider raising the minimum public shareholding in listed companies from 25% to 35%. If implemented, it may potentially lead to offloading of Rs. 3.7 lakh crore worth of shares by 1,174 companies to meet the new norms.

SOCIAL STOCK EXCHANGE In the Budget Speech, FM hinted about the introduction of a Social Stock Exchange and the proposed exchange will be regulated by SEBI. Globally, there are a few such exchanges, such as: Singapore’s Impact Investment Exchange London’s Social Stock Exchange Canada’s Social Venture Connexion South Africa Social Investment Exchange (SASIX)

SUSPECTED CHANGES: Fortunately Not Done What was suspected? Reintroduction of Estate Duty. Reintroduction of Wealth Tax.

EXPECTED CHANGES: Unfortunately Not Done What was Expected? Relaxation in high tax rates for searches, surveys and unexplained income. Settlement for small cases: Changes in limits of additional tax payable. Time limit for disposal of appeals. Dispensing with Income Computation and Disclosure Standards- It was expected that ICDS will be omitted for facilitating ease of doing business. High MAT Rate. Accountability of Department.

115BBE- TAX RATES ON UNEXPLAINED INCOME/EXPENDITURE Tax/Penalty Rate Rate of Tax u/s 115BBE 60% of Income Surcharge 15% of Income EC & SHEC 2.25 % (3 % of Tax & Surcharge) Penalty (Not levied if tax paid before 31st March of previous year) u/s. 271 AAC 6% (10% of Tax) Total 83.25% It was expected that the tax rates on unexplained income/expenditure/investment u/s 115BBE will be relaxed in the presented budget.

PENALTY PROVISIONS RELATING TO SEARCH Particulars If Undisclosed Income Surrendered If Undisclosed Income Not Surrendered Rate of Tax u/s 115BBE 60% of income Surcharge 15% of Income EC & SHEC 2.25 % (3% of Tax & Surcharge) 2.25 % (3% of Tax & Surcharge) Penalty u/s 271AAB 30% of Income 60% of Income Total 107.25% 137.25%

NO CHANGE IN MAT What was Expected? Objective of MAT regime - Facilitate taxation of "zero tax companies", by making such companies liable to pay a minimum tax based on their book profit. What was Expected? When there is a revision in normal tax rate, it was expected that MAT Rate will also be revised. Pre-Amendment Post-Amendment Normal Tax Rate for Companies 33.063% 27.5525% Rate under MAT 20.388%

WELCOME CHANGES Greater use of technology proposed. Faceless assessment. Pre-filled and auto-populated returns. E-verification of investor identity.

FACELESS ASSESSMENT – A PARADIGM SHIFT To impart greater transparency and accountability. To eliminate the interface between the assessing officer and the assessee. No human intervention while scrutinizing tax returns. Assessing officer not to know the identity of the tax payer. Cases selected for scrutiny to be allocated to assessment units on random basis by the Central Cell . Name, Designation or location of the Assessing Officer not to be disclosed.

DATA SECURITY CONCERNS

CHANGES IN TAX RATES

Rate of Surcharge in case of Individuals, HUFs, AOPs or BOIs Total Income (Rs.) Existing Surcharge Rate (F.Y. 2018-19) New Surcharge Rate (F.Y. 2019-20) Effective Tax Rate (F.Y. 2018-19) Effective Tax Rate (F.Y. 2019-20) 50 Lakhs to 1 Crore 10% 34.32% 1 Crore to 2 Crores 15% 35.88% 2 Crores to 5 Crores 25% 39% Exceeding 5 Crores 37% 42.74% It is expected that the increased surcharge will raise a total of Rs. 12,000 crore for the exchequer.

Income Tax Rates for Domestic Companies: This will cover 99.30% companies under the tax rate 25%. Only 0.70% Companies will have to pay tax @30%. Existing Rates (F.Y. 2018-19) New Rates (F.Y. 2019-20) Gross Turnover or Receipt (F.Y. 2016-17) Tax Rate Gross Turnover or Receipt (F.Y. 2017-18) Upto 250 Crores 25% 250 Crores to 400 Crores 30% Exceeding 400 Crores

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