On 10 July 2014, the new Government of India, represented by the Finance Minister, Mr. Arun Jaitley, announced the Union Budget 2014. While there were no major announcements, the budget’s focus is to provide more tax certainty and to reduce litigation.
The Budget Proposals of the new Government in India was eagerly awaited not only by Indian taxpayers but also by Multinationals abroad. The Budget is a comprehensive approach with no surprises and is continuing its road map towards fiscal consolidation.
Some of the important proposals in the Indian law which are relevant for multinational companies doing business in India are outlined – in summary – as follows:
- Foreign Direct Investment limit is enhanced to 49% for the defense and insurance sectors
- No change in corporate tax rates
- Effective Dividend Distribution Tax (DDT) is to be increased from the current 16.995% to approximately 20% as of 1 October 2014 (dividends distributed before that date will still be subject to the lower DDT rate)
- Lower withholding tax rate of 5% on interest payable on long-term funds borrowed from abroad to continue till 30 June 2017
- Transfer Pricing: 4 years’ roll-back period; range concept introduced for determination of arm’s length price
- VAT: GST implementation date still open, no material news, small changes in service tax
- Extension of investment allowance up to 31 March 2017 and for SMEs (investments of INR 250,000,000 or more in a year up to 31 March 2017) for manufacturing sector
Further information on the Budget Proposals can be found on the India Union Budget 2014 microsite which has been designed as a one-stop-shop for information regarding the Union Budget 2014 events, initiatives and social media activities at KPMG in India.