Finance minister Nirmala Sitharaman on Thursday sought to allay fears on super-rich tax and defended the increase in the effective tax rate, saying the high net-worth individuals should contribute more towards nation-building.
The Finance Bill 2019, which was passed by Lok Sabha by voice vote on Thursday, proposes to hike the surcharge on individuals earning Rs 2-5 crore by 3% and those earning above Rs 5 crore by 7%, taking the effective tax rate to 39% and 42.7% respectively.
"Foreign Portfolio Investors (FPIs) registered as companies will not be affected by the increase in effective tax rate and, therefore, the fear of flight of FPIs from India is not well-founded at all. Increase in effective tax rate will impact only high net-worth individuals (HNIs), and it is thus the government's policy these individuals contribute more towards nation-building," she said, replying to the discussions on the Finance Bill.
The Bill will now go to Rajya Sabha. The passage of the Finance Bill will complete the budgetary process for 2019-20.
Sitharaman again clarified that the hike in effective tax rates applies only to individual taxpayers, including other forms of FPIs – trusts, artificial juridical persons – which are treated as individuals.
Cess On Petrol, Diesel Stays
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| FM Sitharaman on Thursday asserted her Budget proposals are aimed at improving ease of living for citizens |
| She, however, did not accept the demand to withdraw cess on petrol/diesel and 2% TDS on cash withdrawal |
| Lok Sabha later passed the Finance Bill, after approving more than two dozen official amendments, by voice vote |
On the demand of not treating partnership firms at par with the domestic companies having annual turnover of Rs 400 crore for relief in corporate tax, Sitharaman said, "The tax rate for domestic companies (reduced to 25%) and partnership firms cannot be compared, as distribution of profits to the shareholders by domestic companies is again subjected to dividend distribution tax (DDT) at 15%. In contrast, the distribution of profits to partners of partnerships from their capital accounts is not subjected to the tax either in the hands of partnership firms or partners. So there is a distinct difference."
She said the task force is working on finalising the report on new direct tax code and the report is to be submitted by July 31. "The government will receive the report and shall take a call on this," the minister said.
Sitharaman said the taxation proposals in the Finance Bill are aimed at working towards ensuring ease of living and minimum government, maximum governance to the citizens.
Earlier, moving the Bill in the Lok Sabha for passage, Sitharaman said amendments to laws are being made through the Finance Bill in five major categories, including in the Central Goods and Services Tax (CGST).
"The Bill is looking at various taxation proposals of the central government for the financial year 2019-2020. Under the direct taxation, about seven acts are being amended keeping in mind the Make in India," the minister said.
Payment and Settlement Systems Act, Black Money Act, Income Tax Act, Finance Act 2015, Finance Act 2004 and Benami Act are among the seven direct taxation laws which are being amended in the Bill.
The amendments in direct taxation include a reduction in corporate tax rate, incentive to purchase of electric vehicles, and incentives to start-ups, international financial service centre and to certain non-banking financial companies (NBFCs). Apart from this, the TDS on tax withdrawal from banks, compulsory filing of returns, interchangeability of PAN and Aadhaar are also there.
On the indirect taxes front, seven acts are being amended, including Customs Act, Tariff Act, Goods and Services Act (GST), Finance Act 2002, Finance Act of 2018 and others.
According to Sitharaman, eight Acts pertaining to financial markets, including Sebi Act, are being amended. There is also an amendment to the Prevention of Money Laundering Act (PMLA).
Explaining the amendment to the RBI Act, the minister said that it is to strengthen RBI's regulatory powers for regulating NBFCs in view of the recent developments.
"It is being empowered to supersede the Board of the NBFCs or to remove the directors, to amalgamate, to reconstruct or to split an NBFC in the public interest or for financial stability. It can also remove and debar the auditors or order audit of any group firm of NBFC," she said.
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