Tax relief for investments in start-ups and sunrise industries

“We continue with phased reduction in rates. Currently, the lower rate of 25 per cent is only applicable to companies having annual turnover up to Rs250 crore. This is proposed to be widened to include all companies having annual turnover up to Rs400 crore.  This would cover 99.3 per cent of the companies. With this only, 0.7 per cent of companies will remain outside this rate,” finance minister Nirmala Sitaraman said while presenting the budget.

The budget also announced several customs duty proposals for promoting make in India, reducing import dependence, protection to MSME sector and promoting clean energy

To promote digital economy, a TDS (tax deduction at source) of 2 per cent on cash withdrawal exceeding Rs1 crore in a year from a bank account is proposed.

The budget also proposed both direct and indirect tax incentives for promotion of electric vehicles in a big way.

Sitharaman, while presenting the Union Budget 2019-20 in Parliament today, made several proposals aimed at boosting economic growth and Make in India. 

To promote investments in sunrise advanced technology industries and in start-ups, the budget has made several tax proposals, including inviting global companies through competitive bidding, to set up mega-manufacturing plants in sunrise and advanced technology areas such as semi-conductor fabrication (FAB), solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure, computer servers, laptops etc. 

Such global companies are to be given investment linked income tax exemptions under Section 35 AD of the Income Tax Act, and other indirect tax benefits.

Presenting her maiden budget, Sitaraman said “to resolve the so-called ‘angel tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification.   

With this, the funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department. Special administrative arrangements shall be made by CBDT for pending assessments of start-ups and redressal of their grievances. No inquiry or verification in such cases can be carried out by the Assessing Officer without obtaining approval of his supervisory officer.

Start-ups will not be required to justify fair market value of their shares issued to Category-II Alternative Investment Funds also. Valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny. She said it is also proposed to relax some of the conditions for carry forward and set off of losses in the case of start-ups. It is also proposed to extend the period of exemption of capital gains arising from sale of residential house for investment in start-ups up to 31 March 2021. 

Affordable housing will get further encouragement in the form of additional tax deduction of Rs1.5 lakh beyond Rs2 lakh of interest paid on loans borrowed up to 31 March 2020 for purchase of affordable house valued up to Rs45 lakh. “A person purchasing an affordable house will now get an enhanced interest deduction up to Rs3.5 lakh. This will translate into a benefit of around Rs7 lakh to the middle class home-buyers over their loan period of 15 years,” the finance minister said.

Expressing thanks to the taxpayer, including self-employed, small traders, salary earners and senior citizens, Sitharaman said “the direct tax revenue has significantly increased over the past couple of years. It has increased by over 78 per cent from Rs6.38 lakh crore in the financial year 2013-14 to around Rs11.37 lakh crore in the financial year 2018-19. It is now growing at double digit rate every year.”

Saying that those in the highest income brackets need to contribute more to the nation’s development and for revenue mobilisation, the finance minister announced enhancement of surcharge of 3 per cent on individuals  having taxable income between  Rs2 crore and Rs5 crore and  7 percent for those with taxable income of Rs5 crore and above.

At the same time, several measures are announced to leverage technology to make tax administration and tax payment easier. Those without Pan Card are now allowed to file income tax returns by quoting their Aadhar number. 

Pre-filled tax returns would be made available to taxpayers with details of salary income, capital gains from securities, bank interests, and dividends and tax deductions etc. Information regarding these incomes will be collected from the concerned sources such as banks, stock exchanges, mutual funds, EPFO, state registration departments etc.

A Scheme of Faceless Assessment in electronic mode involving no human interface is being launched this year in a phased manner. To start with, such e-assessments shall be carried out in cases requiring verification of certain specified transactions or discrepancies. Cases selected for scrutiny shall be allocated to assessment units in a random manner and notices shall be issued electronically by a central cell, without disclosing the name, designation or location of the assessing officer. The central cell shall be the single point of contact between the taxpayer and the department. 

To further encourage digital payments practices in the country or discourage cash payments, the finance minister announced several measures, which include discouraging the practice of making business payments in cash, proposal to levy TDS of 2 per cent on cash withdrawal exceeding Rs1 crore in a year from a bank account. Business establishments with annual turnover more than Rs50 crore shall offer low cost digital modes of payment to their customers and no charges or merchant discount rate is to be imposed on customers as well as merchants. RBI and banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment.  Necessary amendments are being made in the Income Tax Act and the Payments and Settlement Systems Act, 2007 to give effect to these provisions.

For promotion of electric vehicles in a big way in the country, both direct and indirect tax incentives are announced. The finance minister said, “considering India’s large consumer base, we aim to envision India as a global hub of  manufacturing of electric vehicles”. The scheme will include solar storage batteries and charging infrastructure, she said. The finance minister announced that the “government has already moved GST Council to lower the GST rate on electric vehicles from 12 per cent to 5 per cent. Also to make electric vehicle affordable to consumers, our government will provide additional income tax deduction of Rs1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around Rs2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle”. The minister while proposing to increase customs duties on automobile and automobile parts, had provided for exemption of customs duties on certain parts of electric vehicles.