The Indian Finance Minister presented the Union Budget 2020 of the Modi government on February 1. Budget 2020 includes measures aimed at making India a USD five trillion economy by 2024.
Budget 2020 was drafted around three principles – aspirational India, economic development, and caring society, focusing on ‘ease of living’ for all citizens. As expected, the Budget focuses on the agricultural sector, education and skills, infrastructure, rural economy, and climate change. Continuing previously enacted reform measures, the Budget’s direct tax proposals focus on reforms to stimulate growth, simplify the tax structure, lessen the compliance burden, and reduce litigation.
Key tax proposals include a reduction in tax rates for lower-income individual taxpayers, abolishment of the dividend distribution tax (DDT), introduction of a safe harbor and Advance Pricing Arrangement (APA) to attribute profits, and a corporate tax litigation amnesty.
This insight highlights some key Budget 2020 proposals affecting foreign investors and multinational enterprises doing business in India. The proposals would take effect after the Budget passes both houses of Parliament and obtains Presidential assent.
The Budget proposal focuses on widening the tax base with increased reforms in all sectors and provides a foundation for the Indian economy to become more resilient and to achieve a high growth rate. Abolishment of DDT will make equity investment attractive. Other proposals, such as extension of lower withholding tax rate of 5% for interest income, and corporate tax dispute resolution mechanism, are steps in the right direction.