Structural Reform in Taxation Regime in India on the Cross Border Taxation Issues

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This article is written by Shreya Shanu, a student of Sardar Patel Subharti Institute of Law, Meerut.

INTRODUCTION

In this era of world a “global village,” even small firms must master cross-border tax issues to serve their clients well.

 Companies face a number of domestic tax challenges throughout all stages of their business cycle (i.e. entry, operation and exit). It is important that companies are also aware of the various international tax and cross-border impacts of their activities.

India is considered to be the fastest growing economy in the world, India is now the third largest economy globally and the recent mega initiatives of Make in India and Digital India certainly make India an exciting market for global business community.India has the world largest democracy which has seen smooth shift of power 15 times over the past 6 decades and independent judiciary.

Cross Border Taxation 

Companies with employees who visit or reside in the US and multinational groups have tax authorities from both sides of the border playing a tug-of-war to tax the same dollars of corporate profit.

One of the challenges and greatest areas of opportunity for a multinational company today is effectively managing local and foreign taxes in a way that aligns with its overall business objectives and operations.While business considerations primarily drive overseas investment decisions, tax and regulatory aspects also play an important role in the decision-making process. Optimising overall tax burden and aligning tax functions to the business strategy has become more crucial than ever for businesses. We, at Block Development Office in India, strongly believe that entrepreneurs should focus on their businesses, without having to worry about the repercussions under the tax and regulatory framework in the chosen investment destination.

At Block Development Office India, our approach is to first understand the business rationale behind an investment decision and provide solutions that are tailored to the needs of the business, sector and time sensitive requirements. It helps multinationals reduce taxes on earnings, enhance margins, and grow their business. We provide customised cross border tax services under the following broad categories:

  • Cross Border Structuring
  • Inbound / outbound investment
  • Transaction & Income Structuring
  • Tax Risk Management

Here the latest income tax slabs and rates

The Finance Minister introduced a new tax regime in Union Budget, 2020 wherein there is an option for individuals and HUF to pay taxes at lower rates without claiming deduction under various sections. This new tax system has been made optional and continues to co-exist with the old one that comprises three tax rates and various tax exemptions and deductions available to a taxpayer. New tax regimes slab rates are not differentiated based on the age group.

The new income tax slabs and rates HAVE come into effect from April 1, 2020.



Structure of tax rates under new tax regime for FY 2020-21(Rs)

  • If the income of the people is upto 25 lakh per year, then it will have to pay nil income tax.
  • If the income of the people is from 2,50,000 to 5,00,000,then it will have to pay 5% tax.
  • If the income of the people is from  5,00,000 to 7,50,000,then it will have to pay 10% tax.
  • If the income of the people is from 7,50,000 to 10,00,000 ,then it will have to pay 15% tax.
  • If the income of the people is from 10,00,000 to 12,50,000,then it will have to pay 20% tax.
  • If the income of the people is from 12,50,000 to 15,00,000,then it will have to pay 20% tax.
  • Above 15,00,000 then it will have to pay 30% tax.

Individuals with a net taxable income of up to Rs 5 lakh in a financial year will be able to avail tax rebate of Rs 12,500 under section 87A in both the existing and new tax regimes. Effectively, this means that individual taxpayers with net taxable income of up to Rs 5 lakh will continue to pay zero tax in both the tax regimes.

Inbound / Outbound Investment

The permission granted by the Indian Regulations to permit inbound and outbound investments from India into overseas companies, Government Bonds, Branch Offices, joint ventures, etc. The overseas business entities to settle in India and overseas need to understand the concept of cross-border taxes and Regulatory challenges. The Government in almost all sectors provides tax benefits to attract foreign investors for the development of our economy. The business and legal environment in India differs from the environment overseas. The reform process has deregulated the economy and encouraged domestic and foreign investment destinations.

  • Under the existing tax regime, the basic tax exemption limit for an individual depends on their age and residential status. According to their age, resident individual taxpayers are divided into three categories:

    1.Resident individuals below the age of 60 years
    2. Resident senior citizens above 60 years but below 80 years
    3. Resident super senior citizens above the age of 80 years

EU Taxpayers and Cross-border Tax Issues

It is likely that EU citizens buying or investing or working or moving frequently across borders will have to pay taxes and make tax declarations in two or more countries. This is often the case for:

  • People living in one country and working in another (cross-border commuters or frontier workers)
  • Workers posted abroad
  • Retired persons abroad 

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0 thoughts on “Structural Reform in Taxation Regime in India on the Cross Border Taxation Issues”

  1. Hemant kumar says:
    August 5, 2020 at 12:01 am

    Good content

    Reply

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