On 5th July 2019, the 2019/20 Budget was announced in India with a range of proposals aimed at broadening the country’s tax base, investing in infrastructure and growing the economy. A number of the tax changes announced will impact businesses with internationally mobile employees, from transfers between countries, assignees and possibly business travellers.
Given that the announcements include tax rate increases as well as complexity in some proposed regulations, proactive review and budgeting of the impact will be important for businesses seeking to understand the impact to their employees and compliance obligations. We have summarised some of the key information below.
- Surcharge on income tax for high income individuals – the most significant change is the increase in effective tax rates to 39% for individuals earning income between 20 million and 50 million Indian Rupee, and approximately 43% for individuals earning income exceeding 50 million Indian Rupee. The latter reflects a 7% increase in rates. As this has been announced as an in-year change, it would be advisable to review and budget as well as consider which local employees may be impacted to manage withholding changes. For any assignees to India, it would be advisable to review shadow payroll calculations in addition to the assignment cost budget.
- The budget also proposed that persons who enter into certain high value transactions have to file tax returns even if their taxable limit is less than 250,000 Indian Rupee (the current income threshold below which individuals do no need to file income tax returns). The trigger transactions include having expenditure of more than 200,000 Indian Rupee for travel to a foreign country. At approximately US$3,000 this could be a single business class flight and further clarification is pending from the Indian authorities as to whether business travel could affect employees.
- The budget announced a 2% tax deduction on cash withdrawals on amount exceeding 10 million Indian Rupee in a year. This is part of a continuing effort to move towards a cashless economy.
- An additional income tax deduction of 150,000 Indian Rupee annually was announced on home loans for affordable houses costing up to 45 lakh (Indian Rupee). This applies to home loans taken until the end of March 2020
- Tax withholding provisions on contractual payments and professional fees needs to be carefully analysed as the scope of these provisions have widened to include payments made by an individual in personal capacity as well
- Tax base has widened to include the ‘transfer of property by a Indian resident to a person outside India without consideration or for inadequate consideration’ as taxable in India.
- The scope of the Black Money Act has been widened to include Non-residents as well under its ambit where the undisclosed property /income was acquired /earned in the year when they were residents in India.
- Moving ahead on digitisation of compliances and assessments, it's proposed that all assessments shall be carried out electronically, reducing human intervention by way of random allocation of scrutiny assessments.
For global mobility services questions and advice on this announcement, please contact:
Akhil Chandna
Global mobility services leader
Grant Thornton India LLP
Read more insights on tax changes affecting internationally mobile employees.
